Traditionally, many businesses are formed under a single company that owns all the business assets (including the real estate) and operates the business. This structure is simple and easy to manage. But, it does not take advantage of certain liability protections that might make an enormous difference for the business owner.
This protection is primarily accomplished with a “real estate holding company.” The major benefit of this structure is to gain extra liability protection. For example, if the “operating business entity” is sued and could be exposed to a large judgment, the real estate and any other assets in the “real estate holding company” should be shielded from liability.
Establishing this protection as not as simple as forming a new LLC and transferring the real estate into it. Among other items, a lease agreement needs to be executed between the real estate holding company and the operating business entity that addresses several important issues. A deed needs to be drafted in a particular way to avoid transfer taxes and a re-assessment of the property taxes. Also, a business owner needs to conduct his or her affairs in such a way that respects the independence of each legal entity.
An experienced business attorney is in the best position to help you with gaining this liability protection. If you are interested in discussing whether creating a real estate holding company is the right fit for your business, please do not hesitate to contact me.