Business Structure Basics for Your Farm

hello and welcome to facts webinar called business structure basics for your farm our presenter today is rachel armstrong with farm comments i am larissa mckenna facts humane farming program director and i'll be moderating this session thank you all for joining us so before we dive right in let me just take a minute to do a few quick introductions food animal concerns trust or fact we are a national nonprofit organization we are headquartered in illinois and we work to ensure that all food producing animals are raised in a humane and healthy manner we accomplish this by supporting humane farmers such as yourselves promoting policies that may make food from animals safe and healthy to eat and then also by helping consumers make informed food choices along with my fabulous fact colleague samantha who you also see on the slide i run facts humane farming program and we work directly with livestock and poultry farmers from all across the country we offer a variety of services including grants scholarships personalized materials mentorship and of course webinars on many fascinating topics so i invite you to please visit our website at food animal concerns trust.org to learn more about these opportunities and all of the other things that that fact does this time i am just delighted to introduce our steam presenter rachel armstrong rachel is the founder and executive director of farm commons which is an awesome nonprofit organization dedicated to empowering farmers to solve their own business law challenges in a community of supports um rachel has led dozens of webinars and workshops for thousands of farmers nationwide she she's the leading authority on direct-to-consumer farm law she has authored dozens of populations on formula matters for farmers she also instructs continuing legal education classes for the american bar association teaches farm law at the university of massachusetts amherst and is co-author of the farmer's guide to business structures published by sustainable agriculture research and education or sarah she's a graduate of the university of denver strum college of law and the university of wisconsin at and rachel currently resides in northern minnesota and is a license is licensed to practice law in both wisconsin and minnesota so that all said we are super lucky to have her with us today to talk all about uh business structure options for your farm so i think without further ado uh rachel i'm going to turn the floor over to you take it away there we go it's terrific to be with you today so thank you so much for um for joining us i am excited to share with you more about business structures so i'm going to share my presentation with you now let's get this pulled up all right so there we are farm commons you can follow us on all the socials if that is your thing so business structure basics just to make sure you understand about a little bit more about farm commons let me tell you a few things so our mission is to empower agricultural communities to address their own legal vulnerabilities within an ecosystem of support the way that we do that is primarily through educational resources we write guides we host workshops we do webinars just like this we have a podcast channel and a question and answer platform on our website but that's not all educational resources are part of it but we really believe that you that farmers themselves are the source of answers to our most vexing legal challenges so we do leadership development we help foster solutions that are by and for farmers in local communities let's see um the law is enormous and our specialty is really farm business law issues i like to think of this as the boring stuff the boring stuff that actually leads to strong resilient businesses over time so for example business structure issues just like we're talking about today llcs and corporations we also help folks with issues like farmland leases food safety insurance understanding zoning codes crop insurance and so much more farm employment law is another of our particular areas of focus and a really complex subject that we that we work a lot on we have a membership program and that's what makes it possible for us to reach folks i'll tell you more about it at the end of our time today but before i move on i want to mention something that we don't do farm commons is not attorneys for hire and we don't provide individual legal services not um in uh our home-based states of minnesota or wisconsin or anywhere else that's because we're exclusively devoted to educational outreach and leadership development in agriculture communities so this also means that we don't earn revenue by charging for legal services we want you to know that where we get our money from it's memberships it's grants donations and product development contracts and that's what allows us to continue to develop trusted and high quality educational resources that you know aren't designed to get you in our office as a paying client so my name is rachel armstrong indeed i'm the executive director and uh founder of of this outfit um i live in duluth minnesota and this is actually where i grew up i grew up on a farm outside of town back in the day cabbages and potatoes were the big products that uh that my grandparents and great-grandparents produced i actually have a receipt for my uh my grandmother she paid the hospital for the birth of her first child with cabbages and potatoes and actually gave birth in that same hospital to my kids but i had to pay cash of course i founded farm commons because i believe you deserve this information you need this information so that you can develop resilience and that you can do it consistent with your values there are a lot of things that an attorney can provide you and we believe in that ecosystem of support and that includes attorneys but at the same time there is so much that you can know you need to know you deserve to know and decisions that you can make for yourself and that's why we're here today is to help you understand um you know where your what you need to know about business structure so that you can make important decisions i also appreciate knowing about you and thank you so much for uh for using the chat box it's really helpful for me to get a sense of where you're at and what you do as larissa said do use the question box for questions as we go i have set times when i will be pausing to take questions and so we'll look at the question box to get a little bit more lost in the chat box so that was the preferred avenue i was also thrilled to read the list of issues that you're hoping that we will address in today's webinar for example folks said that they wanted to learn about whether multiple llcs protect various aspects of the farm folks are curious about what's the difference between a partnership and an llc how does limited liability really work and are there downsides to forming an llc these are excellent questions i love it i love it we're going to address all of these things so um your questions are an important part about that but i do have a couple of caveats the subject of business structures is huge and deep and we have less than an hour together so there are definitely many questions that are going to be beyond the scope of this presentation and i am excited to share with you further resources that you can use to continue to develop your knowledge but also bear in mind that i can't stray into giving legal advice that would happen if i were to tell any specific person what they should do in their situation so your questions are welcome but when it comes to those questions please bear in mind that some issues may be too complex to really explore here um and that i i can never tell you what to do but i can give you educational background all right so let's learn one more thing about you i am really interested in which business structure your farm is organized as right now i have a poll it's going to show up in front of you really soon if you're new to polling um on zoom don't worry it'll just pop right up there and you can click the button that relates to you here's what that poll is going to say which business structure is your farm organized as right now you can have a couple of options llc corporation sole proprietorship partnership nonprofit but you know what sometimes folks aren't sure and that's fine too so we've got the unsure button and then the something else button let me get this fired up okay so you should see that pop up in front of you books are clicking away and i am thrilled to see that now while the poll is running um let me give you a preview today we're going to be discussing the five basic business structures listed here llc corporation sole proprietorship and partnership and then non-profit now there are other possible business structures there are cooperatives limited partnerships benefit style corporations but by and large farmers tend to stick with the first three options on the list llc corporation and sole proprietorship in fact nationwide research shows that about 45 percent of farms are organized to sole proprietorships these days we find that more and more farms have formed or are looking at forming an llc and corporations have been historically popular in rural areas for folks that are looking for something else but i do think they're losing some ground to llcs these days so let's look at the data most folks have stopped clicking on the poll and uh we are close to um to the the national average we have about 35 percent of folks on the line who are sole proprietors really close to you know 40 45 nationwide 34 so roughly equal percentage have formed llc's then we have our 21 which uh which is unsure no problem about that that's very common and eight percent that are something else all right this is terrific you can make that poll um go away well i'll click and pull but for some reason it still pops up in front of you there should be a little button that you can the red button to click to make it go away all right so that was terrific i have a better sense of where you all are at and now we're going to get into our material let's start with sole proprietorships and partnerships these are default business structures so this means if you do nothing else to form a business structure this is what you have by default so those of you all who are unsure what you had you might have this especially if you did nothing else so literally the moment you start selling a product or a service to customers you have one of these one of these entities if you're the only owner then you have a sole proprietorship but if you work with someone else to earn a profit together which you will share together then that is a partnership starting one of these is simple literally nothing to it in fact the gardener who starts going to the farmer's market to earn a little extra income just launched a sole proprietorship now let's say that that farmer's sister helps her decide when to harvest the zucchini shares in the decision of what to do with the profits well we might have a partnership between our two sisters doing business this way is simple no extra paperwork with the irs um you know nothing to register with the department of revenue there might be other business permits of course like there might be sales tax permits and and and things like that but the point for business structures is that the farmer doesn't take active steps to form this now the usually the only thing we think of as a requirement with a sole proprietorship is to register the business's trade name what's a trade name that's selling your product under a name that's not your actual given name so my name is rachel armstrong if i'm to sell my zucchini as rachel armstrong's farm i don't even have to register a trade name but let's take the example of our two sisters who sell their zucchini when they sell that together they put up a sign at the farmers market that says two sisters farm two sisters farm is a trade name and so the state state law does require that everyone using a trade name register it with the state usually very easy very cheap i think something like 10 to 30 dollars and registering a trade name is required because it gives the public notice of who is behind that business let's say our sisters are named jessica and jane jones then we know hey two sisters farms jessica and jane jones that's the whole point farmers have a long tradition of being organized as sole proprietorships and partnerships we especially see this tradition between family members but you know there's a but but there's one big drawback to remaining as a sole proprietorship and a partnership what is that drawback well here it is for the sole proprietorship and the partnership the owner's personal assets are exposed to business liabilities what does that mean that means if a successful judgment is filed against the business then the person who who has who holds that judgment so let's say i get a court judgment saying i'm owed two thousand dollars the person with the judgment can take the owner's personal assets to satisfy it so let's say that our two sisters farm they're at the farmer's market and a big gust of wind blows up and it captures their tent which flies through the air smacks someone and injures them this is a real bummer the injured person could get a successful court judgment against jessica jones and jane jones and then pursue jessica and jane's personal assets like say their bank accounts stocks cabins those sorts of things to get the money that they're owed now in jessica and jane's situation where we have a partnership folks think of this as even multiplying the exposure either or both of them could lose their personal assets for liabilities that the other person incurred so let's say that jane wasn't even at the farmer's market that day and it was jessica's choice not to weight down the tent as they had done in the past it is not just jessica's assets at risk even though she's the one who technically caused this the injured person could still go for jane's personal assets even though she wasn't at market that day so by going into business together as a general partnership they agreed to be responsible for each other's liabilities a lot of folks hear this and think kids this sounds terrible some sounds bad but at the same time statistics show that 45 of farmers are organized this way so a lot of people are doing it why well some farmers you know they don't know the risk that they're exposed to but others do they do see this risk and they don't see this as a major deal breaker some farmers are relying on the bankruptcy process to discharge debts and liabilities if that is needed um others may feel that the risk of someone actually pursuing their personal assets is low which can be accurate but for other farmers this risk is not acceptable and many attorneys honestly don't recommend sole proprietorships or general partnerships because this risk be it though small does exist so there are plenty of folks plenty of folks who are out there looking for an alternative and the good news of course is that there are absolutely alternatives to the sole proprietorship and the part the general partnership we call these are limited liability entities and the good news is that llcs and corporations protect personal assets from business liabilities so um llc stands for limited liability company and that really sums up the objective in informing one gaining this personal asset protection is the major motivation that most farmers have for forming an llc or a corporation and for anyone looking for this protection these are great options but there's always a but when you're talking to an attorney before we get too excited i got a couple of cautions that are based on some misconceptions that a lot of folks have about the words that i just said the freeze limited liability entity is a little sneaky when you read that it seems to imply that the entity has a limit in terms of the kinds or types of liability that it can experience this is not the case forming an llc or corporation does not change the type of liability that a person can incur or that the business can incur it does not change the type of liability to which you are exposed it only limits what type of assets are available to satisfy that liability only business assets are available so the concept of limited liability can make people forget that it's only personal assets that are protected here let me put that in bold personal assets only are protected which business structure protects business assets from business liabilities none of them none of them business assets are always available to satisfy a business liability and no business structure can protect business assets from business liabilities how do we do that how do we protect business assets insurance folks get liability insurance coverage so that they have someone who will help defend against and pay out on resulting business liabilities so that their business assets aren't taken now when it comes to things like debt there's no insurance that will cover you for debt so for those sorts of things well you know business assets are still exposed i bring this up because some farmers see an llc as a low-cost insurance strategy but i can't emphasize this this enough insurance and llcs or corporations serve two completely different roles on the farm both of them contribute in meaningful ways to manage liability risks but they're different the llc and the corporation are there to protect personal assets insurance is there to protect business assets i'm going to pause for a moment to hope that makes sense with you before i'm going to build on that so this point illustrates why some farmers choose to form separate llcs let's say we have someone who wants to form an apple cider business here separate from the apple orchard business here our cidery our orchard separate llcs or corporations can limit the business assets available to satisfy the business liabilities to only the assets in that llc it also works for the corporation the same exact way but i got another caution of course don't get too carried away a dozen llc's is not really a good idea each entity that a person forms must have its own set of books its own tax filings and the costs of multiple entities can quickly outweigh the benefits especially because we're really going to rely on insurance to protect our business assets also if the court does not see a legitimate distinction in real life between the function of multiple llc's they may not honor the separate llc's so for example if we have one llc that that houses harvesting equipment and the other that houses harvesting operations i don't know that's looking pretty gray a court may not see a any legitimate purpose in having two businesses for fundamentally the same purpose harvesting a crop but in the interest of time i actually can't go into that issue any deeper than there um our book the firm's guide to business structures does offer more guidance on when to form separate entities so hopefully that point helps illustrate for you this concept of protecting business structures from business liabilities too i have another caveat when you form an llc or a corporation that protection needs to be earned it is not bestowed on you automatically just because you filed the paperwork with the state how do we earn this will one of the main things that we do to ensure that we are earning this protection is by following through on separating personal and business fundamentally forming an llc or a corporation is nothing more than a bargain with the state we're just saying hey state will you let me protect my personal assets from my business liabilities from the states like yes you can do that just file this paperwork and then follow through show me that you are separating your personal from your business so at a minimum this means we need to keep separate bank accounts for business and personal use once we have an llc or a corporation or any other limited liability entity this means we shouldn't pay for our kids soccer fees with the same pile of money the same bank account that we pay for the farm speed bill the court needs to know at any moment in time which is which which is personal which is business and our financial arrangement arrangements need to make that easy clear balance sheets that clearly state what are the business assets that helps us earn the protection that we're getting also keep in mind that every state requires some sort of regular paperwork to uh to maintain the llc or the corporation many have an annual report that needs to be filed in addition to a tax return and the failure to file these things can cause you to be administratively dissolved which i should use my finger quotes administratively dissolved which means no more llc there are other obligations definitely of having an llc or corporation but those are the fundamentals i see we've got some questions in the chat box so i'm going to jump right to our question break and take a look here i love questions okay so one person says i'm curious about tax issues on problems what is tax exempt and what paperwork is needed oh boy okay seriously big issue um and um you can pay for books and books and books full of information on not not us but what i'm saying is i buy books um that are full of information on what is tax exempt you know what's taxable and what is not so that's a question that's definitely beyond the scope of business structures and that's more of a tax prep kind of question um any any tax repair that serves farm businesses is a really good source of information you can also use software um that that accommodates farm businesses to help sort those things out another question what is the best business structure to minimize risk in the event of an employee injuring themselves while working on the ranch oh okay this is a really important question but we are um we're kind of we're kind of going down the wrong path here a business structure is is not necessarily the right tool to minimize risk in the event of an employee injuring themselves insurance is the best uh risk management strategy why because an injured employee can still in many circumstances walk away with all the business assets a farms most farmers and ranchers put their personal wealth back into their business really what most farmers and ranchers are looking at doing is protecting the business as you know a proxy for their personal wealth so we got to look at insurance and we have two strategies one is workers comp and one is liability insurance that covers employees so i'm going to leave that one there because this is not a good strategy to address that our married partners another question are married partners considered sole proprietor or partnership great question depends on the state you live in depends on if you're in a community property state or or not so i will admit that one is a little bit um beyond the scope of uh of the webinar um as well because we're getting into some community property um some more complex issues the good news though is most the time you can have it both ways you can pick which one works for you and there are there are merits and demerits to both strategies talk with your tax preparer for sure on that one i'm sensing we have a lot of tax issues and i will say this is this is um we can end up mixing the issues of business structures and taxes but technically tax tax prep is just tax prep it really doesn't make a difference most of the time what business structure you have and that's actually what we're going to cover next i got two more questions though i have an llc for my horse business can i add my small sheep reading business to my current horse business llc how do i do this great question the you just put the assets on the balance sheet there you go once you put the the assets on the balance sheet the sheep the feed you've already purchased the income then it is part of that llc all right our farm is a sole proprietorship and as soon as i'm going to take a break after this one but we sell all of our poultry and produce through our llc which has separate accounts its own meetings with minutes does this make sense i have to apologize that is the kind of question i can't answer because i can't comment specifically on what you're doing because i don't have enough information and i would it would be very risky of me to say that what you were doing was okay when i only have a tiny window into things so we have to pass on that one okay so uh so let me get back to this we we covered the point that your protection needs to be earned and the primary ways you do that are separate bank accounts clear balance sheets and maintaining your filing obligations with the state now maybe you're saying sounds good sounds good i like protections for my personal assets i'm willing to have a separate bank account for my llc i'm interested so then the next question is often okay which one llc corporation those are the two most popular which should we have well both the lsd and the s corp and the corporation offer protection for personal assets from business liabilities both serve that function and when you hold up your end of the deal you can expect that that protection is going to be there for you regardless of whether you chose the llc or the corporation now people often say that an llc is easier than a corporation and it's true in a couple of ways llcs can have more than 100 members members are owners of an llc and those members slash owners can be other llc's or corporations you know let's admit it most farmers do not want 100 owners of their operations so that's not really a big bonus most farmers also aren't interested in having other llcs or corporations be owners of their business happens in some situations but it's not as common so those are not strong selling points of the llc let's look at that third one operating agreements and officers are not required for an llc in most states there are a couple of states where they are this seems easy hey i get out of i get out of appointing officers it seems ridiculous anyways because i just appoint myself the president the secretary and the treasurer you get out of forming that operating agreement but this is not a strong victory uh there are legal reasons to consider doing this anyways an operating agreement is what helps the organization the operating agreement is a document that lays out how the business does important things like ad owners remove owners share profits and more those are things that we really should know for our business we should know how we get in how we get out and how we make decisions so being allowed to not make those decisions isn't really helpful in the end myself and other attorneys strongly recommend that folks write these operating agreements anyways we need to know this stuff this is what helps our business in the end so although it does seem like llcs are more flexible i don't think it's the strongest selling point ever so that being said as we stay in wisconsin it's a horse of peace you got your corporation you got your llc not you know if these points of flexibility are not that persuasive you know we've got to look for some other factors to make this decision is there a tax advantage no it's a short answer the tax forms are different between the llc and the corporation the s corporation but the tax effect tends to be the same in the legal lingo the we call these pass-through entities pass through entity they're so they're both passed through entities and that's how they end up producing the same result all right so i introduced a new word here i said s corporations before i was just saying corporation what happened here well here's what's going on with that an s corporation is what we call a corporation that is elected to be taxed under the irs tax code called subchapter s the s stands for small business and the wide majority of small businesses that are organized as a corporation choose subchapter s taxation because it saves money as opposed to what's called c taxation so there's a distinction between how an s corporation and a regular or c corporation is taxed but there generally is not a difference between how an llc and an s corporation is taxed they're both passed through entities so that being said i do want you to know that both the llc and the s corporation can offer you a tax advantage over the sole proprietorship and partnership so this is a an advantage that's available to both of these and is a good reason to think about forming one of these even if you don't care about personal asset protection what's the advantage some personal income may be taxable at the dividends rate rather than the personal income rate if you have formed a corp an s corporation or an llc generally this is going to be useful where the farmer is making more in income from farming than the average farmer farmer okay so that might sound great you might be saying hey one day i hope to make more than the average farmer in personal income from farming or ranching of course so does this mean i should form a corporation so i can file under subchapter s not necessarily because both llcs and corporations can choose subchapter s taxation so the bottom line is that llcs and s corporations are basically the same thing for the wide majority of farmers folks actually tend to make this decision based on the recommendations of their accountants or tax repairs or what have you or personal experience so you know somebody already has a corporation they're accustomed to the tax filings they're familiar with the lingo hey that's great this is not the decision that will make or break your farm by any means whether to choose a nest corporation or an llc you have bigger fish to fry you don't have to worry about this now the quick question break before we cover some more issues and get to our time just for more of your questions i have a couple of more questions in the box let's see is it okay to have a freeze drying business where we offer both products and services to others along inside the llc of the primary farm that grows the fruits and veggies what i can tell you there is you can conduct as many types of operations as you want within one llc nothing about an llc is or a corporation is limited to any specific type of endeavor um you know so let's say we have a farmer who's really great at pastured uh dairy cows and then that farmer starts doing consulting you can do whatever you want they also start a construction business technically you can do all that in the same entity someone asks can you suggest free software tools to maintain books oh i'll admit i'm not not quite the best person for that your fellow farmers would definitely be more up on the latest useful tools um to maintain books what i can say is congrats you know a big a round of applause that you're thinking about it i'm so glad you're thinking about it because it's going to make your life easier after you form an llc and you have to do the tax filings and you know you're going to do tax filings if you didn't form an llc it's your life is easier when you get some clear books another question how do you pay yourself from the llc and do you need to pay social security and taxes on that income from the business or just personal this is that's actually a really important question but definitely one that deserves its own um discussion all by itself there are a few different options for how you can pay yourself and some of that does relate to which business structure you have um and whether or not you need to pay social security and taxes on that income um also relates back to some more complex scenarios generally speaking yes you have to pay social security and taxes on that income in most circumstances yes okay so now you've got a lot of information to get thinking on whether llc or corporation is right for your farm and maybe you're asking yourself rachel are you gonna tell us how to form one here we go this is the easy part this is the easy part you just go to the state agency that handles business formation usually it's the secretary of state's office the state of wisconsin is a little weird department of financial institutions and all you do is complete the form and pay the fee the form is short and for an llc it's usually called the articles of organization for a corporation it's called the articles of incorporation it's just a title at the top that's different they ask for the same kinds of information we do have full full details in our farmer's guide to business structures but basically what this form is going to ask is who are the owners where are they it's also going to ask who is the registered agent your registered agent is the person who will receive notice that a lawsuit has been filed against you or another legal action these notices need to be received in person in most instances so you need to say who is the real person and the real address that will receive the notice that you're being sued a lot of folks just use themselves as a registered agent you can assume me well hey tell me but other folks don't feel comfortable with that they want someone else to be their agent and for a fee many businesses or attorneys would be thrilled to act as your registered agents honestly not everyone is comfortable with this process of giving the state owner and contact information and registered agents some folks especially those that have had bad experiences with the state may not want to file more paperwork or become more noticeable to the state for lots of folks the state maybe has violated their trust through things like racial profiling and unfair enforcement actions against them underserved audiences in particular may be suspicious of this process and that is fine too still others just don't want to file another form so again not everyone is comfortable with forming an llc or a corporation and many farmers choose to remain as a sole proprietorship or a partnership and they also just like their llc brethren get insurance to protect their assets from their business liabilities i have a couple things i need you to know before we get to the end of our time anti-corporate farming labs these can restrict non-related persons from forming llcs and corporations to either lease farmland owned farmland or conduct farming so if you live in one of the states listed iowa kansas minnesota missouri north dakota oklahoma south dakota and wisconsin don't rush out and form an llc or a corporation when you have unrelated persons in that just uh you got it you got to check the rules to make sure you're not violating them we have thorough flow charts in our book um and some googling can also help you certainly you could talk with an attorney or call a state let's talk nonprofits and cooperatives nonprofits if your farm is exclusively exclusively devoted to pursuits that are scientific educational or for the relief of the poor which is defined you may be able to form a non-profit relief of the poor um well there's a you have to look that up if that's that's where you might be headed because it's very specific and if you don't meet then meet the definitions you don't get approved but here's that thing that a lot of people don't realize nonprofits are prohibited from competing with their for-profits brethren so a non-profit farm even if it is exclusively devoted to educational work cannot compete with a for-profit firm largely with that said what that means is no undercutting prices because you can lose your non-profit status if you do that cooperatives are formed on the principle that decisions should be made through the function of one owner one vote that's not how most corporations or llc's work by default corporations and llcs they assign decision-making authority based on the amount that amount of ownership that you have if you own more of the business you get more votes cooperatives are different so if you're looking at getting into business with other folks and the democratic value of one person one vote is important to you that is a great choice okay so chat box time while we're thinking of some more questions i've got a question for you think of the last farm business you know that went out of business failed sold the assets got out what caused that to happen that fail your sale of assets type that in the chat box let's see i don't see anything coming in just yet oh okay someone says moving death oh tax evasion i got bought out oh children didn't want to continue the business people didn't get along not able to make decisions together the lease collapsed fire lease was not renewed good stuff retired well not good stuff but you know what i'm saying these are the real this is the real stuff retirement age excellent oh too hard to make a profit love it yes yes these are the things let me point out what no one has said yes no one said that farm failed because they chose an llc and not an s corporation that is not what sinks most farm businesses what sinks most farm businesses are what we like to call the d's death disagreement debt disability choosing an llc or an s corporation does not itself do anything to affect the real risks that take farms out of business so it feels like i've gone through this entire presentation and now i'm like uh it doesn't matter not quite not quite there is something very powerful that you can do to create resilience with a business structure it's not just forming an llc or an s corporation it's something else and i have a video that i'm going to share with you to show show that off so here we go i'm going to pull this up you should be able to hear the um the audio right through your screen here we go [Music] we thought first and foremost that remaining friends on the beginning and the end of the company if there an end comes was more important than anything pastor perfect poultry got started because there was a couple of us raising chickens on a smaller scale and selling them locally small farm producers do not have the support services that the traditional commodity-based farms have we thought working together we could come up with some solutions that we weren't able to access as individuals when farmers are starting a business they have many choices in selecting a business entity and the business entity is really just this legal code word for how the law understands this business an llc is one option that farmers have when choosing a business entity either for themselves individually or for a partnership an llc is governed by the operating agreement the operating agreement is a document it's not filed with the state it's simply signed between all the members of the llc and then it pretty much goes in a drawer but the operating agreement is a very important resource so jason came back to us with the contract we were pretty impressed there was everything in there all the sort of production logistics all the way down to what happens when one of us dies the operating agreement has been great for us because not only does it lay out production standards and daily operations of the company but then it lays out a path how we grow how we add additional partners the partnership for pasture perfect poultry really goes into a lot of detail many farms are going to do fine having an operating agreement or other organizing document that lays out more fundamental aspects of the way the owners work together how do you get into the business how do you get out how do you share profits how do you divide responsibilities i think having all this from the start it really helped sort of be proactive against problem solving instead of being reactive when problems came up having the operating agreement has definitely helped preserve our friendship i couldn't imagine working with a better group of guys [Music] all right having the operating agreement has helped us preserve our friendship that is what we're really going for here when we're thinking about the things that take farm businesses down it is again there's disagreements uh you know people dying um you know disability debt which is a proxy for disagreements a lot of times honestly the biggest source of resilience that i can recommend you today is write that governance document getting the llc and the s corporation is the easy part focus on this stuff focus on these issues that actually take down most of our businesses think about those questions how do you get in how do you get out how do we share profits how do we make decisions we have complete checklists of issues to discuss we have models about how to put these operating agreements or bylaws as they're called in a corporation about how to put those together bylaws for corporation are just as important and usually they're required by the state so if you've got to do it anyways you might as well make it work for your farm so you can learn more um i've got two i've referenced throughout today the um sorry i'm clicking around i put these a little bit outdoor i'm gonna start over learn more and if you thought this was great information and you're thinking gosh what else do i need to know about legal resilience i've got a workshop for you it's called discovering resilience you learn the 10 legal best practices of a resilient farmer ranch business business structures is just one module out of five and actually we go into quite a bit more information about the operating agreement and the bylaws and how to write those to make sure that you're capturing what really matters for your resilience through discovering resilience you can create a customized action plan to develop your resilience you can also do this in two ways on your own time you can take our self-paced course or you can take the workshop with the cohort of peers you can sign up for one of our it's called live or regular discovering resilience where there is a weekly meeting component and you can meet with other farmers around the country that are learning and going through the same things discovering resilience again it covers five modules employment law insurance diversification um well you know now i'm blanking on on all of those but all the good stuff land matters of course leasing we have at our website 100 plus guides models and checklists on a range of farm business law issues we also have an advanced farm employment law course which you can take any time if employment law is of issue to you you can ask questions on our question and answer platform and of course our guide i'm reaching for it now the farmer's guide to business structures 325 pages on all the vital info we've got those flow charts um on the anti-corporate farming laws much more detailed information on non-profits corporations checklists model dot like model meeting minutes and things like that and you can join us as a producer member with facts you can get 30 off the annual membership fee there's your coupon code fact 30 but you have to do so before december um and so uh get in there it's 30 off it's 99 for a year um so then you can take 35 38 off the 99 and um and now i've run up to my questions and i see we've got some more in there and i'm excited to tackle the rest of these someone said does anything here and affect inheritance great question great question um the if the intersection between a business structure and inheritance is is often occurs when someone wants to pass down the business as a whole enterprise they would like to pass to their successor the farm assets the operations the markets they want to kind of the whole kit and caboodle and so oftentimes they will form a business structure as a convenient way to transfer the entirety of the business rather than just selling off the assets to that person so that's usually the relationship between those two if you mean does it affects taxation of the inheritance generally no if the estate is going to be taxed these don't necessarily change that um but that's this is not a strategy to address inheritance tax in and of itself someone else asks is that information you file able to change okay such as a registered agent yes you can always change your registered agent pretty easy to do and usually the form is literally called change of registered agents so go to your secretary of state's office um you know ask and i mean that online look for the form there or give them a quick call should be pretty easy and sometimes doesn't even cost anything we have someone who has a farm devoted expressly to helping 4-h kids they keep feed and host kids who would not be able uh to show the animals and be a part of the fair is that considered a non-profit and can we have um a for-profit in addition to a sole proprietorship great question whether it can be a non-profit is definitely a more complex question and you'd want to sit down with our guide or a more thorough resource resource on nonprofits to get into that question it looks like you're headed down the right path but there are details we'd have to address but to the question can you have a non-profit plus a plus a for-profit plus an llc or sure absolutely you can have all those things you'd have two non-profits and you know three llc's last one does owning or leasing the land for the farm have any weight as to what type of business to create um that's a that's a that's a great question i'm going to answer it from a slightly different angle um let me let me figure out the best way to order these um these thoughts because i think other people may be wondering what maybe wondering what this question is um so when we start an llc we know that um business assets are available all those business assets are available to satisfy those business liabilities so what about the land i mean the land looks like a business asset right i mean it's used for the production it's the basis of the farm and ranch in most instances but most people do not put the land itself into the llc or the corporation as an asset of that entity they don't put it on the balance sheet why then it'll be available for business liabilities folks don't want that they want it as a personal asset so that it's protected so now we have the situation where we you know let's say i rachel armstrong own this parcel of land but it's being used for my business how's that work it works through a lease i as rachel armstrong lease my land which i own personally to my llc which i also may be the sole owner of so it looks like i'm leasing to myself and i am i'm just doing it wearing two different hats rachel the person wearing that hat is leasing to rachel who's wearing the business hat this is a best practice and um it is important to uh to get that lease in place because it further legitimizes the distinction between rachel the person and rachel the business owner which is the whole point of an llc or a corporation so getting that lisa in in place is important and also does not have to be hard it's as easy as saying i'm rachel armstrong in my capacity as a person at least to myself rachel armstrong in my capacity as an owner of you know rachel's green acres llc a little bit of you know supplementary info that you would normally have on a lease we should have a lease rate shouldn't be free and you know we go from there thank you rachel um there is another question that came into the in the chat but let me just pull up this end of webinar poll for folks that are still here and just give us a little feedback about your experience um so the question on the chat and we'll this will be the last one before we wrap up um which might be a good one to end on um my farm is an llc and i'm the sole owner i'm leaving my farm to my youngest son and my will do i need to change my operating agreement to reflect this oh i'll admit that is when i can't answer because it's very specific to those situations i would 100 you need someone to read exactly what you've got going on to to advise on that point excellent okay uh well as folks are taking that that poll i'll leave it up on the screen let me just um let's see here let me do a couple of housekeeping items before we sign off today uh so as i mentioned a recording of this session and the slides will be available soon i'm going to be archiving them on our website our youtube channel and then also sending out links to them in an email hopefully later today along with some other services that fact offers we're hoping to have another webinar next week it hasn't been officially announced yet but it would be about botanicals for livestock health so that might be of interest to folks um i also like to thank you rachel it's been a real honor and a pleasure to have you with us today i uh fact going to continue our collaboration partnership with farm commons so i'll be able to get more information out to folks about the different resources and services and hopefully trainings that folks might be interested in participating and i took part in the um what was the exact names not discovering resilience building no guiding resilience guiding resilience yes ag professionals we have guiding responses right so folks that work in an ag technical assistance role that there's a separate training for that but there's also a farmer training for um discovering resilience for your your own operation so i really really recommend those trainings and all of the wonderful things that farm commons is doing to support um farmers out in the field um so thank you again rachel i'd like to thank everyone else out in our audience for your interest and attention it's been wonderful having so many folks join us today and throughout our webinar season we're kind of winding down for the season until uh by you know one or two more and then we'll be taking our summer hiatus um but i appreciate everyone being here and i hope that we're all able to connect again soon and um any that last words of wisdom that you'd like to share rachel before we sign off no thanks everybody for uh for coming and for thinking about these issues and and uh and pondering what's best for your operation thanks everyone have a great rest of your day bye bye

2022-04-03 20:17

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