1. Farm Business Organization and Transfer
Chapter 14

2. Common Business Forms for Farms
Sole Proprietorship (90%)
Partnership (6%)
Corporation (3%)

3. Sole Proprietorship Characteristics Advantages
Owners owns and manages the business
A single owner of the business
Is established by starting to operate the business
Income taxes paid at individual or joint returns rates
Advantages
Simplicity
Freedom
Flexibility

4. Sole Proprietorship Disadvantages
Personal Liability for legal troubles of the business
Size is limited by the capital available
Lack of business continuity

5. Joint Ventures Operating Agreements Partnerships Corporations
Limited Liability Corporations
Cooperatives

6. Operating Agreements
When two or more sole proprietors carry on some farming activities jointly while maintaining individual ownership of their resources.
Tend to be informal
Tend to be limited arrangements
Enterprise budgets can be useful
The general principal of the operating agreement is to share income in the same proportion as total resources are contributed, including both fixed assets and operating costs.

7. Partnerships
An association of two or more persons who share the ownership of a business to be conducted for profit
Two Types
General Partnership
Limited Partnership
Characteristics
Sharing of business profits and losses
Shared control of property, with possible shared ownership of some
Shared management of the business

8. Partnerships Partnerships do not pay taxes directly. Advantages
Easier and cheaper than a corporation
Allows for flexibility as children are brought into the business.
Disadvantages
Unlimited Liability of each general partner

9. Corporations
Are separate legal entities that must be formed and operated in accordance with the laws of the state in which they were organized.
It is separate from its owners, managers, and employees.
It can own property, borrow money, enter into contracts and sue or be sued.

10. Corporations Characteristics Laws vary from state to state
Three groups of individuals are involved in a farming corporation: shareholders, directors, and officers.
Two types are C and S
S corps can have no more than 75 shareholders
Other corps can not own stock in an S corp

11. Corporations Taxes Advantages C corps can be double taxed
S corps are taxes like a partnership
Advantages
Corporations provide limited liability for all shareholders/owners
Allows for pooling of resources
Credit easier because of business continuity
Provides easy way to transfer business ownership.
Tax benefits for fringe benefits
Tax rates for C might be beneficial

12. Corporations Disadvantages More costly to form
Most likely will continue to need legal advice and accounting services
Requires directors meetings, board meetings and for the minutes of these meetings to be kept.

13. LLCs and Cooperatives LLCs Cooperatives
Operated like a partnership however gives the benefit of limited liability (creditors cannot pursue personal or business assets owned individually)
Cannot deduct the cost of fringe benefits
Cooperatives
Made up of independent farmers who wish to carry out one particular operation jointly.