Rachel RespondsSeptember 27, 2018

Building the right business structure for your farm.

Question:

I want to move beyond just having a sole proprietorship or partnership. I've heard that I should form an LLC or S corporation. Which is better?

Answer:

 

Both LLCs and S corporations allow you to protect your personal assets from your business’ financial liabilities. Both follow “pass through” income taxation rules. The big difference is that S corporations allow owners who make more than the average in income to classify the excess as dividends, which enjoy a lower tax rate. However, LLCs can also enjoy that benefit by filing as an S corporation for taxation purposes.

Some people believe that LLCs are easier because the statutes often do not require an LLC to draft paperwork such as organizing documents or meeting minutes. However, the failure to write organizing documents or maintain meeting minutes can jeopardize the protection from liability. Many farmers choose between the LLC and corporation on factors such as personal experience or preference.

FOR MORE INFORMATION: Many of Farm Commons’ business entities resources are specifically devoted to helping you choose between having an LLC or a different kind of corporate structure. Complete the flowchart in chapter 2 (pages 21–24) of the Farmer’s Guide to Choosing a Business Entity and read pages 40–61 and 171–175, among others. Farm Commons also has shorter guides to read, including Farmer’s Guide to LLCs, Farmer's Guide to S Corps, and Farmer's Guide to C Corps.

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