How to Open & Operate a Financially Successful Small Farm by Melissa Nelson & Julie Fryer

Author:Melissa Nelson & Julie Fryer
Language: eng
Format: epub
Publisher: Atlantic Publishing
Published: 2015-02-22T00:00:00+00:00

Selecting a Business Structure

There are five legally recognized types of business structures in the United States — sole proprietorships, general partnerships, cooperatives, limited liability companies (LLCs), and corporations. Each structure can be furthered refined with substructures or combined together to meet your particular needs. For example, you can set up your business as an LLC but request Subchapter S status for the corporation. Each structure brings certain tax and liability benefits but also can involve increased paperwork, expense, and operative regulations.

The legal structure you choose will form the backbone of your operation and set the platform for your everyday operations. It will influence how you proceed with financial, tax, and legal issues. It even will play a part in how you name your company, as you will be adding “Inc.,” “Co.,” or “LLC” at the end of the name to specify the type of company structure. Your company’s legal structure also will dictate what type of documents need to be filed with the government and determine the documentation you will need to make accessible for public scrutiny. Before you officially start your farm business, you must decide which type of business structure is best for your farm, your goals, and how you plan to operate. The following sections will list, in order of difficulty and expense, the issues involved with each structure, but please check with your adviser for more information.

Sole proprietorship

Sole proprietorships are by far the easiest business structures to manage, the simplest to understand, and the least expensive to maintain. It is also the most common business structure used by small businesses. Under a sole proprietorship, you (and your spouse, if married) are the only owners and all taxes or liability protections are grouped with your personal life. You are responsible for everything — you file one income tax form and any liability coverage you have is provided under a personal insurance policy such as homeowner’s insurance. Unlike most of other business types, the sole proprietorship does not need to show earnings as a company, instead all profits pass directly through to you. A sole proprietorship does not require any special paperwork — it is the de facto structure for most independent contractors or self-employed workers.

You easily can work as a sole proprietor for the rest of your career. However, without a formal business structure in place, you are personally liable for anything that goes wrong because of your business. If your product or service is faulty, if a customer falls on your property, or if your bills go unpaid, you can be sued for damages. If your business does not have enough money or assets to satisfy the lawsuit, you can be forced to use your personal money or assets to pay the bill. As mentioned earlier, proper insurance policies will cover you in many of these instances, but establishing a full separation between you and your business through a more formal structure is the only way to protect yourself completely.

If you choose to operate under a

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