How do I choose the best business structure for a new farm?

Choosing the legal structure for your farm is an important decision for beginning farmers. The farm business structure will affect the legal and tax liability of your farm. There are several structures to consider, described very generally below:

Sole Proprietorship: If you make no effort to legally establish your business, the default business structure you have “chosen” is the sole proprietorship. In this structure, there is no legal distinction between you and your farm business.

Cooperative: A cooperative is controlled and operated by a group of “members.” Each member contributes equity (ownership) capital and shares in the control of the firm on the basis of one-member, one-vote principle.

Partnership: A partnership is an arrangement where more than one businesses and/or individuals agree to advance their business interests together.

B-Corp (Benefit Corporation): B-Corporation charters require the company to conform to socially beneficial practices.

Limited Liability Company: The Limited Liability Company (LLC) offers limited personal liability with the single taxation feature of partnerships and sole proprietorships.

C-Corp: The C-Corp is a corporate business structure that protects you and other owners from personal liability and provides some other non-tax benefits, such as the ability to raise capital from private investors.

S-Corp: S-Corp income is passed through its stockholders in proportion to their investment and is taxed at personal income tax rates.

The ATTRA publication Tips about: Farm Business Structures provides a brief introduction to the major business structures, including the pros and cons of each, as well as links to additional information resources.

Professional legal assistance is strongly recommended to establish your business as anything other than a sole proprietorship, and may be helpful even in that context to determine if a sole proprietorship is the best structure for your farm business.