Regardless of the type of business you run, you need to put a well-thought-out business plan in place. Business planning covers all aspects of a business, from its legal structure, to marketing, to succession planning. Without putting a viable plan in place covering each important aspect of the business, companies are taking a risk. This applies as much to a family farm businesses as to multinational corporations.
Looking at the issue of the legal structure of a family farm, there are a number of options available. Although family farms may be operated as sole proprietorships, they may also be operated as corporations, limited partnerships, limited liability companies, or a unique combination of these legal categories. Getting the business form right is important because the form or structure the business takes can have an impact on important aspects of the business.
One of these is the valuation of the business for purposes of transfer tax. This refers to taxation which applies to the passing of title to property from one person to another, which includes estate tax and gift tax. Another way legal structure can impact a family farm, or any business for that matter, is by its effect on income taxation during the business’ operation and possibly even upon liquidation.
Selecting a business form which has a favorable effect from a tax perspective, without taking other factors into consideration, is not always going to be the best strategy, but it should at least be kept in mind when determining how to structure the business at its inception.
In our next post, we’ll look at another critical reason to carefully consider how to structure a family farm business.
Source: Agri-View, “Is farm business planning part of your New Year’s Resolutions,” Troy R. Schneider, Dec. 31, 2014.
