Tag: family farm

In our last post, we began looking at the issue of business planning within the context of a family farm business. We’ve already spoken about the importance of appropriately structuring a family farm business because of the potential tax consequences. Between the various forms of business structure, tax applications vary considerably. Although this is a big issue to plan for, here we’d like to talk briefly about the way structuring a farm business can impact ownership and management of a family farm.

There are a variety of business structures one can utilize for a family farm. Four general forms are: sole proprietorship; general partnership; corporation; and limited liability company. Which one is selected depends on the needs and goals of the business and those involved in it.

Some of the things that need to be taken into consideration when structuring a business, other than tax issues, are:

• How many family members are involved in the business?

• Is there a desire to share ownership with children or siblings?

• Is shared management appropriate?

• Should ownership of the business be separate from its management?

• Is there a desire to limit liability among owners?

These, of course, are only preliminary questions that should be considered when selecting a business structure. Sole proprietorships and partnerships are relatively easy to set up compare to corporations and limited liability companies, though the latter two forms carry their own benefits while the former carry certain risks.

Each family has unique dynamics, of course, and what is appropriate for one family may not be appropriate for another. In addition, the needs of a family business can change over time, and this should also be considered. Ultimately, each family farm business needs to come up with a business arrangement that is appropriate for its needs. Working with experienced professionals in forming such a plan is important, including an experienced business attorney.

Source: Agri-View, “Is farm business planning part of your New Year’s Resolutions,” Troy R. Schneider, Dec. 31, 2014.

To read part 1, click here.

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.