Business Entity Formation
It is likely you own the farming land and equipment in your own name (or jointly with a spouse) and possibly have mortgages or loans on these assets in your own name as well. This business structure, i.e., a sole proprietorship, is attractive because it does not require any additional filings on your part, except for registering a trade name if you want to operate the business under a name different than your own. There are also no annual filing requirements or fees owed for this type of business structure. While a sole proprietorship is incredibly easy to form, since it happens by default, it also opens you up for unlimited liability since you and the family farm are considered to be the same legal entity. It also makes the transition of the operation a lot more difficult should you become incapacitated or die.
Alternatively, a limited liability company (LLC) or a family limited partnership (FLP) can be formed to protect assets, reduce tax liability, and provide for an orderly transfer of control and ownership with minimal conflict between family members. Using these business entities, a management and decision-making structure can be established that will not only facilitate the current success of the farming business but also allow all the affected family members to feel assured that plans for the farm’s future operation will be implemented. A properly implemented decision-making structure can also provide continuity in operation should you become incapacitated and unable to participate in the farming activities. Tools such as a buy-sell agreement, management agreement, or employment agreements can be implemented to help facilitate this smooth transition. It is important to note that with either of these business structures, the proper business formalities must be followed, such as annual filings and payment of the required fees to the secretary of state, to maintain the liability shield around the family farm.
We understand the importance of the continuation of your family farm and legacy for future generations. We are here to assist you with a coordinated plan and guidance to ensure that this legacy will be a lasting one. Give us a call today so we can discuss the right plan for you and your family.