How do you know whether to choose a sole trade, partnership or limited company structure for your business? The changes in farming over recent years have made this question much more complicated. Many factors need to be taken in to consideration when making this decision.
Traditionally farms have been small family owned businesses which would usually best suit a partnership structure. Farm businesses have now developed and diversified into more complex businesses which may be more suited to incorporation. Some of the benefits of incorporation include:
- Increased tax efficiency – by being able to receive income from both salary, dividend, rent and interest
- Reduced risk – the business and all its liabilities can be separated from the owners assets which can reduce risk if anything goes wrong
- Improved image – incorporation can help to convey a more professional image of the business
- Increased flexibility – being able to sell equity allows limited companies to be flexible when raising investment and funding.
All these benefits can make incorporation appear a very attractive option; however it also has some disadvantages, such as: the cost of incorporation, the extra paperwork and administration and also having to meet greater compliance requirements.
As every farm business differs from the next it would be impossible to say what the best option would be for all farms. In this case one size does not fit all.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.