A farm business or operation can take the form of any number of business entities. Traditionally, farms were either sole proprietorships or partnerships. A number of farms, both large and small, began incorporating (into either s-corp’s or c-corp’s) several decades ago. With favorable changes in the law with regard to LLCs in Ohio, many farmers have begun taking advantage of the many benefits that come with establishing a farm LLC.
Liability Protection – Farms are an inherently dangerous type of business. Individuals who farm are exposed to a multitude of risks involving equipment, animals and labor. Additionally, the employees or contracted workers that help run the farm are exposed to these same risks. Why expose the farm owner’s personal assets (including their homes and other family resources) to those risks? When used properly, a farm LLC shields the owner from claims arising from those risks and also from lawsuits, liens and other financial disputes. By calling AlerStallings today, you can significantly limit your liability exposure.
Tax Benefits – LLCs provide their owners with some very advantageous tax benefits that aren’t available to other types of business entities. A farm LLC, if set up properly, allows for what the IRS calls “pass-through taxation.” Unlike traditional corporations, a farm LLC doesn’t pay its own taxes. Instead the tax liability passes-through to the owner. The result is that a farm LLC AVOIDS DOUBLE TAXATION. Farming profits and losses are only taxed one time through the owner of the LLC. What’s truly unique about a farm LLC is that if, based on an individual businesses’ circumstances, it would be advantageous to be taxed as a corporation, the LLC can elect to be taxed as such. The flexibility to choose how a business would like to be taxed is something that can only be captured with an LLC.
Flexible Organization & Management – Ohio law allows the members of an LLC to determine the structure and management of the company. A farm LLC can choose to have a centralized manager (like a corporation) or to be managed by the members (like a partnership). Many farmers elect to be member-managed as it can be easier to run the business and allows for the greatest flexibility. Additionally, there is no restriction on ownership for an LLC. As a result, individuals, corporations (including other LLC’s) or trusts and estates can be a member of an LLC. This is a powerful tool that aids in estate and succession planning for farmers. Often, trusts are used as members in order to minimize estate taxes, avoid probate costs and protect the farm from the nursing home and Medicaid “spend-down.”
Conclusion: LLCs are an increasingly attractive way for farmers to form a business entity. While it is easy to establish and manage a farm LLC, we strongly encourage farmers to get professional advice when setting up an LLC. A well thought out plan that is incorporated into a properly drafted LLC “Operating Agreement” is essential to reap the many benefits of a farm LLC. Selecting the right business structure for a farm can have an enormous impact on the owner’s estate planning and business succession planning. Therefore, seeking advice from an attorney who focuses on estate planning as well as business planning and farm planning is extremely important. To find out more about any of the information discussed, give AlerStallings a call to schedule a consultation at any of our offices in Dublin, Mansfield, Bellefontaine or Findlay.