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Peace of mind: A guide to incorporating your ranch

Stephanie Lastovica Marburger for Progressive Cattleman Published on 24 January 2018
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Transitioning your ranch from a sole proprietorship to an entity structure can seem daunting, but with the help of your attorney and CPA it can simplify the process and protect your family for generations to come.

We have all been in the situation where we look back and realize we could have done something in our past to correct the current situation. When it comes to a legal claim against your business, a dispute among family members or an injury occurring on your land, that is the wrong time to think about the protection and peace of mind incorporating your operation can offer.

A lot of ranchers and landowners often ask the question: “ When, if or should I incorporate my ranch?” To help answer this commonly asked question, Thomas Baird, a board-certified attorney by the Board of Legal Specialization by the state of Texas in farm and ranch, residential and commercial real estate, offers his advice.

First, there are many types of incorporation, such as partnerships, corporations and limited liability companies. Baird explains what a limited liability company (LLC) is and the process of getting your operation as an LLC entity. He focuses on this particular type of organization because it is flexible and can fit the needs of many types of operations. Baird says you should first determine if it is appropriate for you to have an LLC.

More about an LLC

An LLC includes many different aspects and provides many advantages, including liability protection, tax benefits and ease of transferring control and interest in the farming operation to other members.

Baird explains how an LLC can provide liability protection: “If something happens as a result of, for example, a four-wheeler accident, a hunting accident or an employee injured by an animal, they can then sue the entity. However, the members who own the entity cannot personally be liable.”

Land is oftentimes the most valuable asset of an operation and can be subject to a claim. Baird suggests forming a separate “LLC to actually own the land, and the business LLC will carry on the business activities such as ranching, hunting and gravel/soil exploration.”

This allows the land to be protected in the event of a claim against the business activities and lets the family sleep well at night knowing the land is protected.

Marilyn Hamilton of Hoff Hamilton Ranch Ltd shares why she decided to form an LLC for her operation. The reason was threefold; one was, she started thinking about what would happen to her ranch as she got older.

She also wanted to make sure raising cattle for food and promoting wildlife habitat could continue for years to come and stay in the family. And, last, to help with liability and state tax concerns.

Tave Parker Doty, J.D., Ph.D., grew up farming and ranching and continues to raise cattle and horses. She is currently an associate attorney at Whitaker Chalk Swindle & Schwartz PLLC in Fort Worth, Texas. Doty says, “Many farms and ranches in Texas are owned and operated as sole proprietorships. This is the easiest arrangement, but it may present complications.”

Each family and its farm or ranch have a unique story so, unfortunately, one size does not fit all. The first step to figuring out which entity would best fit your operation is to identify your goals. Doty shares two common goals: passing the family farm to the next generation and gaining protection from potential liability.

It is OK to have multiple goals when selecting an entity for your family farm or ranch; most people do. Doty recommends first meeting with “your attorney and CPA to select the appropriate entity for your family farm or ranch and having a conversation among all the current, and possibly future, owners as a great place to start.”

A look at the future

While considering these entities, it is a perfect time to talk about the future. It is a time to bring children or grandchildren into the conversation if they will be the future owners of the operation. Doty also recommends the LLC, as it is the most flexible option in Texas. “The LLC gives you the liability protection of a corporation without as much administrative work and the tax benefit of a partnership,” Doty says.

However, this is not the only structure to consider, she says. “Your attorney and CPA may recommend a different structure, such as a corporation or limited partnership, depending on how your property and finances are structured.” Doty expressed it is very important to involve your attorney and CPA in all of these conversations along the way.

This can be a lot for most operations, and it is important all owners involved are comfortable with each decision and you are working with an attorney and CPA you are all comfortable with. Doty says, “Transitioning your family farm or ranch from a sole proprietorship to an entity structure can appear daunting at first if you do not know where to start. However, working with your attorney and CPA to select the best entity for your family can simplify the process as well as protect you and your family for generations to come.”  end mark

Stephanie Lastovica Marburger is a freelance writer based in Texas.

This article is not intended for legal advice. Consult your attorney or legal counsel.

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