Presentation on theme: "Farm Business Organization and Transfer"— Presentation transcript:
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 businessA single owner of the businessIs established by starting to operate the businessIncome taxes paid at individual or joint returns ratesAdvantagesSimplicityFreedomFlexibility
4 Sole Proprietorship Disadvantages Personal Liability for legal troubles of the businessSize is limited by the capital availableLack of business continuity
6 Operating AgreementsWhen two or more sole proprietors carry on some farming activities jointly while maintaining individual ownership of their resources.Tend to be informalTend to be limited arrangementsEnterprise budgets can be usefulThe 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 PartnershipsAn association of two or more persons who share the ownership of a business to be conducted for profitTwo TypesGeneral PartnershipLimited PartnershipCharacteristicsSharing of business profits and lossesShared control of property, with possible shared ownership of someShared management of the business
8 Partnerships Partnerships do not pay taxes directly. Advantages Easier and cheaper than a corporationAllows for flexibility as children are brought into the business.DisadvantagesUnlimited Liability of each general partner
9 CorporationsAre 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 SS corps can have no more than 75 shareholdersOther 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 partnershipAdvantagesCorporations provide limited liability for all shareholders/ownersAllows for pooling of resourcesCredit easier because of business continuityProvides easy way to transfer business ownership.Tax benefits for fringe benefitsTax rates for C might be beneficial
12 Corporations Disadvantages More costly to form Most likely will continue to need legal advice and accounting servicesRequires 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 benefitsCooperativesMade up of independent farmers who wish to carry out one particular operation jointly.