Choosing a Business Structure for Your BC Family Farm

[ Photo by Frances Gunn on Unsplash ]

Waterstone is proud to partner with Chilliwack Farm Story to produce a series of blog posts exploring key legal considerations in the agricultural sector. To learn more about Chilliwack Farm Story and their mission, click here.   

If you are thinking about starting a farm in British Columbia, or have recently started one, one of the first decisions you will face is how to structure your operation. Many family farms begin as sole proprietorships or partnerships and later incorporate because, as the business grows, they may be able to utilize some of the tax advantages offered to companies under the Income Tax Act (Canada).

For family farms, your choice of business structure can impact many aspects of your business and personal life. Your decision can affect your liability exposure, overall tax treatment, financing options, and succession planning arrangements.

Sole Proprietorships and Partnerships: Simple Structures for Growing Farms

A sole proprietorship is the default structure when one person owns and operates a business. A partnership involves two or more individual entities carrying on a business together with the intention of making a profit. Partnerships are especially common when family members or close associates want to jointly manage and grow a farm.

Clear advantages of sole proprietorships and partnerships are that they are simple to establish, have few regulatory burdens, and can be a cost-effective way to begin a farming operation. However, as the business becomes more established (and profitable), farmers operating under these structures may be missing out on advantageous tax opportunities, while also opening themselves up to greater personal liability for all debts and liabilities arising from the farm and its operations. They may also have difficulty raising capital from outside investors or lenders, and structuring their estate and succession planning down the road.

Corporations: Protecting Your Business

Incorporating means creating a separate legal entity for your farm. This structure can offer significant protection—particularly as your business grows and becomes more complex.

Some of the advantages include:

• Limited liability: The corporation, not you personally, is responsible for its debts and liabilities. This can protect assets you own, like your home, if something goes wrong.
• Easier to bring in partners or investors.
• More flexible for estate and succession planning.

Some of the disadvantages include:

• More complex to set up and maintain.
• Ongoing reporting and regulatory requirements.
• Costs associated with incorporation and annual filings.

Tax Considerations

Corporations may be eligible for lower corporate tax rates and opportunities to defer or split income, whereas partnerships and sole proprietorships can allow you to deduct losses against your personal tax return. However, the best tax strategy depends on your specific circumstances, and we always recommend speaking with a qualified accountant or tax expert to assess the financial implications and benefits of incorporating.

Quota and Marketing Boards

If your farm is regulated by a marketing board —such as dairy, poultry, or eggs—quota ownership is a significant consideration when choosing your business structure. Quota systems are tightly regulated and transferring quota must comply with provincial marketing board rules, so it is important that you work with your regulator, as well as your lawyer and accountant before making any changes to your business structure.

Depending on the structure you choose, ownership of the quota may need to be held by a specific individual or entity, which can have legal and tax implications.

Choosing the Right Path

No two farms are the same. A small family operation with no employees may not benefit a great deal from incorporating at the start while a farm that is scaling up, acquiring assets, or bringing on additional family members or business partners should strongly consider incorporation.

At Waterstone, we work with farmers throughout the Fraser Valley to assess their goals, evaluate risk, and help them structure their businesses accordingly. Whether you are just starting out or thinking about the next generation, we are here to help you navigate the legal landscape.

Need help choosing the right structure for your agricultural business? Contact Waterstone Law Group LLP’s Business Law  group to speak with a lawyer who understands the unique legal and business needs of BC farmers.