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.