Buying commercial property to house your business? Excellent idea, there are very good values in this real estate market. But think before you take that deed. It may be a better idea to use a limited liability company to own the real estate. If you already operate your business under a limited liability company, you may want to consider if it is wise to use the same entity to own the real property.
The ownership of business assets is a principle factor underpinning the organization of the business and can be the number one problem if things don’t go as planned. Over the last several years, as the economy became increasingly more difficult for small business, we have been called upon to shrink businesses to preserve profitability. The ability to expand or contract your business is an important tool to respond to changing economic times.
A business owner may want to spin off nonperforming assets and that could include a commercial building that has become too big or expensive. Selling the property without disrupting your entire organization or the financing of other assets is the most desirable solution.
There have been a number of instances in which a business owner is operating as a limited liability company but took title to commercial real estate personally. This form of operation is never acceptable and always causes trouble.
Do not sign personal guarantees or cross collateral agreements. Believe it or not, the terms of a commercial transaction are negotiable. Once you sign a guarantee or pledge personal assets, you have destroyed the very nature of the protection afforded by a limited liability company. If you cannot agree on the terms, find another source of financing.
Most importantly, plan properly before you enter into a commercial transaction. Call our office and we will steer you through the rough waters to a successful outcome.