A client wants to operate a software business on his Florida homestead property located outside a municipality. He is concerned about asset protection. He wants to build a separate building on the property, near his house, to use as an office. He wants to know whether he should create an LLC to own the business and the new building on his property. He proposes that the business would lease the office building from the new Florida limited liability company.
The asset protection objective is to protect as much as possible under the homestead exemption. Most courts have held that a homeowner or his family may conduct a commercial enterprise on his homestead without losing the exemption provided that the homestead is situated outside a municipality. If this client were to build a structure on his house to be used as a business office I think he would have homestead protection for the residence and the business office. The office would not be protected if it were owned by an LLC, or if the client carved out a piece of his homestead to be owned by an LLC. Homestead protection is afforded only to natural persons and not to business entities. The homeowner, not the LLC, should pay for the construction of the office structure on the homestead property.
The client may form an LLC to operate the business. The LLC can rent the building from the homeowner’s family, or the homeowner may permit the LLC to used the building without rent. Business income and tax losses can be run through the LLC. The LLC may pay all expenses associated with the maintenance and operation of the business building including a reasonably proportionate share of the homestead’s utilities, taxes, landscaping etc.
This arrangement will provide the business the liability shield of an LLC, the tax advantages of an LLC, while maintaining the homestead protection for the entire homestead property and all improvements.