Maybe your family has been farming the land for generations. Maybe your farm is your passion project, rising out of your belief that it’s time for people to get back to the basics. Either way, you never really thought about incorporating before.
Is it time? Maybe. Farming is a tough occupation, prone to both the same risks that other businesses have — plus risks that are generally unique to agriculture (like droughts, early frosts and other problems with the weather). Changing your business structure over to a limited liability corporation (LLC) can help you manage those risks.
Here are some questions to consider before you make the decision:
Do you need the personal liability protection that an LLC offers? The problem with being a sole proprietor is that your business finances and legal obligations are indistinguishable from your personal ones. If someone sues your farm, they’re suing you. If the bank comes after your farm, they can also come after your home and other assets.
Does an LLC offer any tax advantages or disadvantages for you? LLCs can be taxed either as sole proprietorships or as corporations, which means that you have options. Understanding how these options will affect your wallet is something that you may need to discuss with an accountant or another financial advisor.
Can you handle the compliance issues? The chief advantage of being a sole proprietor is that there’s very little paperwork involved. LLCs don’t require as much work as other types of corporations, but you will need to keep more financial records, a separate account for the business and make sure that you file all the required annual reports.
Still not sure if it’s time to turn the family farm in to an LLC? Talk the issue over with an experienced attorney. They can guide you through the decision-making process.