There are various legal forms for operating a business. However, in the agricultural sector, due to its specific features, businesses are mainly operated in three particular forms: sole proprietorship, general partnership (partnership) and joint stock company, better known under the name of “Company”.
Each of these legal forms has advantages and disadvantages from a personal, financial, legal and fiscal point of view; and each of them should be analyzed in order to establish what form of legal structure might be most appropriate for the business. It is therefore necessary to analyze several factors to make an informed choice:
a) All business income is used to cover the cost of living of the individual (s). If the individual withdraws, for personal purposes, all the profits that the business generates, there is a good chance that the fact of incorporating will not result in any tax savings.
b) The individual is alone and has no one to associate with. When changing the legal structure, it will therefore be necessary to go directly to a company.
c) What is the individual’s short, medium and long term business plan? Is he planning a lot of investments that will lower his income?
d) Has the individual benefited from all possible tax benefits? Does it plan to make drainage, clearing or leveling expenses – which are tax deductible in the year they are incurred – or does it plan to purchase animals?
The table below presents the main advantages and disadvantages of legal structures.
Thus, the choice of a legal structure for the operation of a farming business must be carefully analyzed with the help of competent people in order to avoid unpleasant surprises later on.
|
Individual company |
Partnership |
Joint stock company (company) |
|
Benefits : |
Benefits : |
Benefits : |
|
Disadvantages: |
Disadvantages: |
Disadvantages: |
Marc St-Roch
CPA, CA, M. Fisc., Tax specialist at SCF Conseils
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