Farming is a (Legally) Complex Business!

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The cultural image of the family farm with a red barn, some chickens and a family sized country kitchen evokes a sense of simplicity and comfort. In reality, the modern Canadian farmer is engaged in a complex business, exposed to the risks of weather, interest rates and fluctuating prices on international markets.

The article points out that “farm groups have emphasized the importance of establishing the farm business on a sound legal footing, both to protect individual farmers and to maintain the family farm as a viable unit,” and argues that farming requires a more sophisticated approach to legal matters than is required for most other businesses. The owner must establish appropriate legal structures for the relationship between the owner and the business, and between the owner and the family. The first broad category involves the organization of the business (sole proprietorship, corporation, partnership) as well as complex contractual relationships, adherance to government regulations, and complex tax and accounting rules.

The second category (relationsip with the family) involves complex questions of estate planning.

As part of the process of estate planning, the family has to consider all aspects of family, and determine who will best carry on the business portion of the farm while also respecting the potentially “missed interest” of the other siblings/children that may not inherit. As a business commodity, the farm is best run with multiple individuals. However, the business format may present some issues, particularly when it comes to inheritance. The shareholders are only entitled to the value of their shares, and must determine whether those shares can be passed down through a will, or if the shareholder agreement requires some other form of “succession” in the event of a shareholder death. Other considerations include the tax implications of a particular structure, and planning for the retirement of the owner. Legal advisors need to be familiar with the latest developments in corporate law, tax law, environmental regulations, and government support programs to provide the sophisticated approach to legal matters required by farmers today.

Read the article here.

Takeaway:

  • Farming is a legally complex business requiring legal advisors to be current with developments in tax and corporate laws, as well as applicable government regulations.

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.