Understanding Farm Business Structures
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Deciding which legal business structure your farm business will operate under is no easy feat. If setup correctly, the chosen business structure can help a farm business owner capture the best return on investment and allow it to operate at its most efficient level.
Making a Decision
However, prior to choosing the most optimal business structure, every farm manager must understand that several factors will influence their decision. Factors such as:
- Tax Efficiency
- Legal Liability
- Cost and Time Commitment of Administration
- Future Needs
- What you want to do with the farm when you are no longer around to manage it
Canadian farm businesses are rapidly consolidating and growing at an unprecedented rate. This is due to evolving technologies and education within the farming community that are revolutionizing the way farmers “farm”. As the younger generation returns to the farm, that family farm needs to grow to support multiple families. The increasing size of farms is one result of the demise of traditional farm infrastructure such as the Canadian Wheat Board. Today’s marketing companies prefer large acreage farms that are a “business” not a farm of the past.
What You Need
It takes about $2.31 worth of assets on a large farm to generate $1 of revenue compared to $18 of assets to produce the same $1 of revenue on a farm generating less than $100,000 in revenue (Statistics Canada, 2014). This is what consumers want; productive and efficient farms to produce affordable food. The more efficient the farm business – the more capable they become at utilizing capital to purchase additional farm land from smaller farming operators.
This efficiency revolution is also seen within the ‘business’ side of a farming operation; however, not as robust. According to Statistics Canada, from 2001 to 2011, the number of farm corporations increased 23.9% whereas the number of farm proprietorships decreased 20.2%. Farm corporations are rapidly becoming the preferred farm structure of larger farms whereas a sole proprietorship remain the preferred structure of the smaller, less efficient, family farm. It is expected larger family farms will evolve into a combination of structures such as joint ventures and formal partnerships.
In order to successfully pass each module, the participant must:
- Receive a passing grade of >60% on the module quiz
- Spend adequate time reviewing all online content (approx. 5-15 hours)
- Fill out all worksheets (approx. 12 worksheets per module)