The “S” corporation has long been a standard-bearer for farm business entities! But, is this the right option for your farm? Make sure by starting with our free resource, Farm Business Structure Basics to get your answer. It answers questions such as: Which one is better – a corporation or an LLC? If you are more of a visual learner, follow the flowchart in our free Understanding Your Options which is Chapter 2 of our Farmers’ Guide to Business Structures. Through a series of Yes/No questions, this flowchart helps the reader confirm the difference between S corporations, C corporations, and LLCs.
When you need more detailed information about S corporations, check out our Chapter 6: S Corporations of the Farmers’ Guide to Business Structures. Spoiler alert: The S corporation isn’t a business structure itself at all! It is a tax status that a business can elect to be classified as for tax benefits. In this guide, you’ll learn about the S corporation tax status, why businesses would want to be classified in this way, and what entities are eligible to utilize the S subchapter of the IRS Corporate Tax Code.
If you want to take advantage of Subchapter S taxation, you’ll need to first form a corporation or LLC business entity. Turn to Chapter: 4 LLCs or Chapter 5: C Corporations of the Farmers’ Guide to Business Structures for full details on how to form one including checklists and models.
Don’t forget the governance document! Especially if you are working with others, disagreements can cause intractable problems for the farm business further down the road. You’ve heard the stories… fights about debt loads, mismanagement of budgeting, unclear communication causing stress… There is a solution. Although it’s often not legally required, we can’t stress enough the importance of a thorough governance document in preventing these types of problems before they harm the farm or ranch business (and the personal relationships of those involved). No matter the business structure chosen, write corporation bylaws that addresses unique needs of the farm or ranch business. When you’re ready to draft your operating agreement or set of bylaws, use the Farmers’ Workbook for Creating a Governance Document (20pgs) to support your journey each step of the way.
We provide a fully annotated model set of bylaws in Chapter: 5 C Corporations and a two sample annotated operating agreements in Chapter 4: LLCs, one agreement applicable for a married couple and the other agreement for non-married business partners. These include detailed descriptions of how and why the agreement was drafted as it was. Follow along with the fictional stories of the farmers creating the agreements so you can understand how they relate to your own operation.