Joe Smith forms one limited liability company (LLC) to operate his business. He purchases a building in his own name, which he leases to the LLC. His theory in owning the building personally is that the greatest risk applies to assets in the business form, which is true.
What he doesn't realize is that liability for any injuries attributed to improper maintenance of the building may run back to him, because he is the owner of the building. Thus, all of his personal assets outside the business may be exposed to liability. These assets, almost assuredly, are more significant than the building itself. If the building is contributed to the LLC, only this one asset is exposed to liability.
A clause in the lease contract should impose the duty to maintain the building on the lessee (i.e., the LLC). However, courts usually will not allow a party to delegate certain duties, such as the duty to reasonably maintain his or her property.
Because the building is a high risk when it comes to injuries, Smith should consider contributing the building to the LLC, in exchange for his equity interest. The building could then be protected by liens that run to the owner.
Alternatively, Smith could own the building personally, and lease it to the LLC, if he is sure that his insurance liability coverage is more than adequate to cover all potential claims.