Now that you’ve got some background on the types of business structures out there, here are some things you should think about as you choose the structure best for your farm.
Are there benefits to income splitting? For instance, could funds be flowed to spouses, or other adult immediate family members to reduce the family taxes? Note: Income splitting is where funds can be flowed directly to a family member and taxed at their tax rate rather than all funds being taxed at your higher tax rate.
How much control do I want/need as time goes on? If there are other “owners”, being in a sole proprietorship is not an option.
What is the nature of our business and its exposure to risk? If you’re concerned about risk, being incorporated can lower risk. However, the protection provided by incorporation can be significantly lessened when business owners provide personal guarantees to lenders, suppliers and other third parties.
How long before I expect to make profit? If you have losses currently, being a sole proprietorship allows you to use those losses to offset other income. If you’re making a profit, it might be smarter to incorporate.
Okay, we’ve got it. We’re ready to look at our options.
Now that you've hashed out the options and/or decisions on the best business structure for you, mark complete and continue on to learn about insurance needs.