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When you're setting up your farmland purchase, which is right for you: a Limited Liability Company (LLC) or a corporation?
The new guide Ag Land Loans 201 breaks down the benefits vs. disadvantages of LLCs and corporations, and also answers common questions related to loan preparation, such as how current leases affect your land loan, potential costs to consider, and what financial documentation lenders may require. Download the free guide from FBN® Finance now.
Continue reading below for a detailed comparison between LLCs and corporations to help you make an informed decision about your farmland loan.
An LLC provides limited liability protection, meaning your personal assets are generally protected from business debts and legal claims.
LLCs offer flexible tax options. By default, an LLC is treated as a pass-through entity, meaning profits and losses pass through to the owners' personal tax returns. However, you can also elect to be taxed as a corporation if that’s more beneficial.
LLCs have a more flexible and less formal management structure compared to corporations. There are fewer requirements for meetings, record-keeping, and reporting.
LLCs allow for flexible profit distribution among members, which doesn’t have to be proportional to ownership percentages.
Forming an LLC is generally simpler and less expensive than forming a corporation. The ongoing compliance requirements are also less burdensome.
In a pass-through LLC, members may be subject to self-employment taxes on their share of the profits, which can be higher than corporate tax rates.
LLCs may face limitations in raising capital compared to corporations, as they cannot issue stock. This can be a disadvantage if you plan to seek significant outside investment.
LLC regulations and benefits can vary significantly by state, which may complicate multi-state operations.
Like an LLC, a corporation provides limited liability protection, potentially safeguarding personal assets from business liabilities.
Corporations can benefit from lower corporate tax rates and can deduct certain business expenses that may not be available to LLCs. Additionally, corporations can offer tax-advantaged benefits to employees and owners.
Corporations can issue stock, making it easier to raise capital from investors. This can be a significant advantage if you plan to expand or need substantial funding.
Corporations have a perpetual existence, meaning the business continues to exist even if ownership changes. This can be beneficial for long-term planning and succession.
Corporations can offer stock options and other equity-based incentives to attract and retain employees.
Learn four steps to succession planning and get the tools you need to protect your farm’s future in this free guide. Download Now
C corporations face double taxation, where the corporation pays taxes on its profits, and shareholders also pay taxes on dividends. However, S corporations may avoid this by passing income directly to shareholders.
Forming and maintaining a corporation can be more complex and expensive than an LLC. There are more stringent requirements for record-keeping, reporting, and holding formal meetings.
Corporations are typically subject to more regulatory scrutiny and compliance requirements, which can be time-consuming and costly.
LLC | Corporation |
Liability Protection | Liability Protection |
Tax Flexibility | Tax Advantages |
Simpler Management | Raising Capital |
Profit Distribution | Perpetual Existence |
Ease of Formation | Employee Incentives |
LLC | Corporation |
Self-Employment Taxes | Double Taxation |
Limited Growth Potential | Complexity and Cost |
State-Specific Rules | Regulatory Compliance |
The best choice depends on your specific circumstances. It’s advisable to consult with legal and financial professionals to determine the most appropriate structure for your land purchase and business activities.
Liability protection: Both LLCs and corporations offer liability protection, but the choice may depend on the specific risks associated with your land purchase and business activities.
Tax implications: Consider the tax implications of each structure, including self-employment taxes for LLCs and double taxation for C corporations. Consult with a tax advisor to determine the most advantageous structure for your situation.
Management and control: LLCs offer more flexible management structures, while corporations have more formal governance requirements. Consider which structure aligns better with your management style and business goals.
Raising capital: If you plan to seek significant outside investment, a corporation may be more suitable due to its ability to issue stock.
Long-Term Goals: Consider your long-term goals for the property and business. Corporations may offer advantages for succession planning and long-term growth.
If you ’re considering applying for a land loan, the loan advisor team at FBN Finance is here to help. Our experienced loan advisors are ready to walk you through each stage of the real estate loan process and are well equipped to develop personalized solutions to fit your farm's unique needs.
If you're ready to complete your land loan application independently, FBN Finance has a straightforward digital application for ag land loans that will guide you through the process.
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