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Suppose it's time to change the combine head and the only tool you have is a power saw. In the same way, your business structure is a tool that is applied to many tasks during the life cycle of your business. As your goals evolve, you may need different tools to:
It's impractical to change structures frequently. That's why during the past decade, the flexibility of a Limited Liability Company (LLC) has attracted a growing number of farmers. |
| LLC is a hybrid tool |
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"The LLC is the entity of choice, either for a farm transfer or for the current generation to operate the farm," says Philip Harris, University of Wisconsin ag law specialist. An LLC combines the limited liability of a corporation with the informal management and decision-making of a general partnership. Unlike a limited partnership, LLC partners can retain limited personal liability even if they participate in management. An LLC also can be taxed like a partnership. Unlike an S corporation, profits and losses don't have to be allocated on the basis of ownership. |
| Look before you leap |
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Each LLC partner participates as a general partner. "This allows the younger generation to get into management, or it allows unrelated parties to work together," Harris says. An operating agreement helps preserve the LLC's limited liability, avoid misunderstandings among members, and set rules for individualized profit-sharing and decision-making. Otherwise, state statutes govern. Before changing your business structure, consider how it would affect government farm payments. "LLC owners who are active in the business must also pay self-employment taxes on profits from the LLC," Harris says. |
| Learn more |
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Center for Rural Affairs, Risk Management Workshop Series |
