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Merging Or Acquiring? Make Sure The Trucks Are Legally Yours

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Merging Or Acquiring? Make Sure The Trucks Are Legally Yours

Whether it is through fleet expansion, acquisition or simply yearly compliance, companies at some point will have to register their commercial vehicles for legal operation. Commercial vehicle registration, though, can be a tricky task that, if not handled correctly, results in vehicles sitting idle and losing revenue.

It sounds easy, but there are many potential pitfalls. If your vehicle crosses state lines, what kind of registration does that require? If you have acquired a company with assets, do you have to transfer ownership of each vehicle? And what if those vehicles are registered in four different states? And who is responsible for insurance for the vehicles?

Eric Jahnsen, director of the transportation fleet for North American-rental company Sunbelt Rentals, said that the myriad of regulations, from registration to compliance, necessitates outside help.

"When we start a new business in a new county or state, there are local regulations that we're not familiar with and J.J. Keller is helping us with them," he said. "Federal regulations are pretty easy to keep up with, it's the local regulations that vary."

Those regulations include vehicle and driver compliance, but also ensuring that all vehicles are properly registered and titled.

"You can license a vehicle at just about any weight you want, but that doesn't mean it's operating legally," Jahnsen said. "I can license a 26,000-pound vehicle at 80,000 pounds, it doesn't mean it's legal. It's understanding the local regulations to license it properly to match the local regulations."

Insurance coverage

Insurance represents a major investment on commercial vehicles. The key takeaway, though, is that federal regulations set minimum levels of financial responsibility for motor carriers, at least $750,000, and prohibit all motor carriers from operating a vehicle without the appropriate levels of insurance coverage. From there, state laws may vary, which is where complexity enters the picture. For instance, in Connecticut, the law requires coverage of all vehicles, regardless of federal law.

"The federal financial responsibility requirements for motor carriers do not apply to all vehicles with commercial registrations," the state statute reads. "…Thus, the owner of any vehicle with a commercial registration, instead of just those subject to the federal requirements, must continuously maintain throughout the vehicle's registration period, certain minimum financial security."

Just as important is who is responsible for securing insurance. Vehicle owners would typically have to secure liability insurance for both bodily harm and property damage. Owner-operators may also have bobtail, non-trucking liability and physical damage coverage. 

Insurance coverage must be worked out prior to registering a commercial vehicle, and that brings up the next important question – whose vehicle is it anyway?

Who owns the vehicle? 

Vehicle owners are responsible for securing the necessary insurance and registration information. It's a simple question for an asset-based fleet, but what if the fleet uses owner-operators or leased operators? Who is responsible for registering and insuring those vehicles? 

Depending on the legal arrangements and contracts, fleets may be responsible. According to the Owner-Operator Independent Drivers Association (OOIDA), "the lease shall clearly specify the responsibility of each party with respect to the cost of fuel, fuel taxes, empty mileage, permits of all types, tolls, ferries, detention and accessorial services, base plates and licenses, and any unused portions of such items." OOIDA also states that the lease "shall further specify who is responsible for providing any other insurance coverage for the operation of the leased equipment, such as bobtail insurance."

These complexities are just a few of the reasons why fleet legalization experts provide so much value. 

What type of registration is required?

A common misconception in the transportation industry is that carriers simply need to register for a Unified Carrier Registration (UCR) number. That is not actually true. There are generally two types of "registrations." These are the license plates and UCR, and they are not the same.

Vehicle license plating (IRP or base plate)

When owners register their vehicles, they need to choose whether the vehicle will be registered with an IRP or base plates. Some fleets may have a mixture of both.

IRP is the vehicle registration and is an agreement between the states, the District of Columbia and Canada to allow for payment of fees based on the total distance operated in all jurisdictions, OOIDA said. This allows vehicles to operate in multiple jurisdictions through a single apportioned plate for the purpose of interstate commerce. IRP registration is required for any vehicle or combination vehicle with three or more axles regardless of weight, or one weighing more than 26,000 gross weight or registered gross weight. If you are not leaving the state, you may want to register with a base plate for that state.

Unified Carrier Registration

Conversely, UCR is a business registration based on the number of commercial vehicles operated in interstate commerce. This information comes from the carrier's most recent MCS-150 form. 

"Whether you need the Unified Carrier Registration or not depends on the states you operate in," Jahnsen said, noting that without UCR registration, Sunbelt would need to acquire permits in multiple states to operate. "The Unified Carrier Registration brought all that together so we didn't have to get permits in each state."

Managing registration through acquisition

Fleets and other businesses may look to expansion as a way to grow their operation, either through a merger or acquisition of a smaller fleet. In some cases, the acquired business may not even be a fleet itself, but it may own commercial vehicles. Those assets, while they are likely currently registered and titled, may need to be retitled or re-registered. That starts a legal process that will dictate how these procedures are handled.

What steps and the timeline that process takes depends on the legal structure of the agreement. A merger, for instance, may not require sales tax be paid but a purchase of assets may trigger a tax.

Jahnsen said Sunbelt operates in Canada, and Canadian rules differ from many U.S. states.

"In some provinces in Canada, depending on what the documents read, you may be required to take the vehicle out of service until the transfer of ownership is complete," he said. "And that transfer of ownership might take weeks, which means we may not be able to deliver our service during that time … managing that timing is extremely important and J.J. Keller helps with that."

In some cases, a fleet may create a holding company to handle vehicle registrations, said Connie Owen, regulatory business advisor for J.J. Keller.

"Vehicles can then be leased out to different entities with common ownership with a lease agreement," she said. "This allows the holding company to move the vehicles immediately to the operating company that needs the equipment."

In that case, Owen said owners need to consider whether to transfer existing vehicles into the holding company and retitle and relicense them or phase them out of the fleet. Also, who is responsible for the vehicle during the move between the holding company and operating company and how will they be marked and insured? And in what name should they be licensed?

If both companies operate with IRP accounts, they will have to be merged into a single account. Also, depending on when licensing and registration is set to expire for vehicles may determine how that process will be handled. Done too soon and the fleet may be paying duplicate registration fees. 

"Each state has different regulations on re-titling, re-registration, leasing, remarking vehicles, and taxation and all must be considered before moving forward," Owen said. "These get complex when there are many locations involved and registrations expire at different times of the year."

Jahnsen agreed, noting that the complexity of this transfer means managing through regulations to ensure a seamless transition for customers.

"There are different documents and sometimes there are inspections required when a transfer of ownership occurs," he said. "Depending on the state, [we need to manage the process] to allow for time to get all this done so we don't have to completely shut down our business."

Owen advises creating a task list and timeline (as well as a comprehensive equipment list) to ensure steps are not missed. Fleets are also advised to include any paperwork necessary in the cab of the vehicles so drivers can clearly explain any issues law enforcement may have as to ownership or title of the vehicles during the transition period.

Going back to the initial question as to who owns the vehicle, J.J. Keller said it makes a difference. Remarking of vehicles is immediate, but each state has different deadlines for retitling vehicles, and that becomes further complicated if it involves multiple states with various deadlines. 

It's important to note, the company said, that vehicle title and vehicle registration are two separate things.

A straight purchase of assets also complicates matters. State statutes will dictate retitle and registration deadlines, but the new owner must have all the titles. What if the seller didn't hold all the titles? Lienholders may be involved with this process, and that could add processing time to the process.

"When you start an inventory of the titles you will find more challenges," Owen said, noting that who has the titles, who has to sign off on them, and if there is a lienholder, are they even still in business are just a few of the issues that can arise at this stage.

Regardless of how a fleet acquires vehicles, they must eventually be retitled and registered. While the process can be complicated and time-consuming, there are experts like J.J. Keller that specialize in ensuring compliance. Failure to follow the various state and federal regulations will lead to legal consequences that will sideline vehicles and result in monetary penalties. And that hits the bottom line.

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Posted-In: acquisition Freight Freightwaves Mergers and Acquisitions truckingM&A News General

 

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