# L.L.C. for hay business?



## jd6100d

I have been custom hay baling and selling hay from my property as well as fields that I have leased from other people for 25+ years now. My wife and I also have been full time employed for the same amount of time. In the last several years, we have grown tremendously and I have been considering forming an L.L.C. but I have more questions than I have answers. How do others in the same situation handle this type of business situation? Is an L.L.C. necessary? We are in Southeast Texas.


----------



## Vol

jd6100d said:


> I have been custom hay baling and selling hay from my property as well as fields that I have leased from other people for 25+ years now. My wife and I also have been full time employed for the same amount of time. In the last several years, we have grown tremendously and I have been considering forming an L.L.C. but I have more questions than I have answers. How do others in the same situation handle this type of business situation? Is an L.L.C. necessary? We are in Southeast Texas.


It can be very advantageous. Great about limiting your personal liability if someone gets hurt on your property/operation during any part of your haying operation. Peace of mind.

Regards, Mike


----------



## aawhite

Most LLC's are formed as protection for personal assets. Were something to happen, (accidents are the most common: on the farm, during transportation, etc. Also can protect you in the case of financial troubles or bankrpptcy) the person suing you can go after personal assetsersonal vehicles, savings, house, etc.

An LLC would separate business assets from personal assets. There can be some tax advantages, too. It's a good idea to visit with a tax lawyer, or accountant to weight the pros/cons.


----------



## swmnhay

I have a LLC but I think it is still wise to carry a Liability policy also.If something would happen they could possibly both sue the LLC and you as a individual.We live in a sue happy society it seems so every bit of protection can't hurt!


----------



## RockmartGA

aawhite said:


> It's a good idea to visit with a tax lawyer, or accountant to weight the pros/cons.


That would be my standard advice.

You can also have multiple LLCs under the same ownership. For example, if you have been in business for 25 years, you probably have substantial assets built up in equipment in addition to your personal assets (home, savings, etc). One strategy is to have your equipment under one LLC and lease it to your other "Operating Company" LLC. The operating company would own nothing. Of course, everything would have to be an "arms length transaction" between the two LLCs, which would entail separate bank accounts, invoicing / payments from one to the other, etc.

A good tax lawyer / accountant can steer you in the right direction.


----------



## NewBerlinBaler

I hired a lawyer and formed an LLC some years ago but it was for another business that I started with a partner - not for the farm operation. I'm no longer involved in that other business.

The wife & I operate our farm together but we don't have it in an LLC. It's actually in her name to take advantage of any government programs that cater to women or minorities (it was my idea to do this). So far, this hasn't benefitted us but we've only been in operation since 2011. Our accountant says that if she dies, I can easily take over farm ownership with no tax consequences.

To protect our assets against a liability suit, we have an umbrella insurance policy. They are very inexpensive and provide peace of mind. Right now, we have $3 million of coverage and the premium is only $173 / year. Any insurance agent will be happy to sell you an umbrella policy. Five minutes and a few hundred bucks later, you're covered.

Gary


----------



## slowzuki

Similar laws up here, generally the reasons to incorp are you are consistently profiting enough that the corp tax rates are better and to protect from liability.

We are always warned that when small you have to give personal guarantees on most business credit that bypasses the protection from financial liabilities. There are all kinds of legal tools as well you have to be careful of that bypass the protection of the corp such as doing work under your own name vs the corp and court ruling the person was dealing with you the individual not you the company.

Sole proprietors have to be careful about making this decision, get advice.


----------



## RockmartGA

slowzuki said:


> There are all kinds of legal tools as well you have to be careful of that bypass the protection of the corp....


I think the common phrase for the above is "piercing the veil".

As has been previously discussed, one of the main reasons for forming a LLC is for the protection it provides in the event of a lawsuit or bankruptcy. Lawyers for the other side try to find a reason to "pierce the veil" of protection so that they can get to your assets on the other side.

One of the more common ways to lose the protection of an LLC is co-mingling of funds. That is why transactionsn should be conducted at "arms length" - which is easier said than done, especially with a small Mom & Pop operation.


----------



## RockmartGA

NewBerlinBaler said:


> To protect our assets against a liability suit, we have an umbrella insurance policy. They are very inexpensive and provide peace of mind. Right now, we have $3 million of coverage and the premium is only $173 / year. Any insurance agent will be happy to sell you an umbrella policy. Five minutes and a few hundred bucks later, you're covered.


That's good advice. Especially in these days when a person can spill hot coffee in their lap and get a million dollar settlement.


----------



## slowzuki

RockmartGA said:


> One of the more common ways to lose the protection of an LLC is co-mingling of funds. That is why transactionsn should be conducted at "arms length" - which is easier said than done, especially with a small Mom & Pop operation.


Most accountants warn you about co-mingling funds on any farm operation ie to keep a strictly business account for farm expenses. With a corp your accountant will pull his hair out and scream if you use the business account for personal stuff regularly!


----------



## JD3430

slowzuki said:


> Similar laws up here, generally the reasons to incorp are you are consistently profiting enough that the corp tax rates are better and to protect from liability.We are always warned that when small you have to give personal guarantees on most business credit that bypasses the protection from financial liabilities. There are all kinds of legal tools as well you have to be careful of that bypass the protection of the corp such as doing work under your own name vs the corp and court ruling the person was dealing with you the individual not you the company.Sole proprietors have to be careful about making this decision, get advice.


I have a corporation and that scares me. I have been asked to personally guarantee a few loans. If I don't sign personally, no loan.
So what the heck good am I getting from being incorporated if I have to sign personally?


----------



## DSLinc1017

I operate two LLC ans one Inc. the main reason as stated above is for tax purposes. In laymen's terms the LLC gets its own SS#. As far as liability it offers some protection but in the end the share holders are still responsible. 
For loans it is almost impossible to not sign a personal guarantee. Even for very large corporations. The banks have been burned in the past. It helps give them (banks) some protections even if you go into bankruptcy.


----------



## jd6100d

Wow-Great responses. I live just north of Houston and most of our market is for horse hay in round bales. We get a premium for quality hay but as I see more and more "picky" horse people, I get more concerned about them having a horse colic and trying to sue me for the hay. Also, many of them pick hay up from my barns and see everything that I have worked for sitting around. I have even had several comment about how "good" the hay business must be, they never say anything about how long or how much hard work it took for us to get to this point. I just want to protect what I worked long and hard to acquire by having some kind of protection. Thanks to all who replied with the great answers. I will get working on a umbrella insurance policy and schedule an appointment with a tax attorney.


----------



## Teslan

jd6100d said:


> Wow-Great responses. I live just north of Houston and most of our market is for horse hay in round bales. We get a premium for quality hay but as I see more and more "picky" horse people, I get more concerned about them having a horse colic and trying to sue me for the hay. Also, many of them pick hay up from my barns and see everything that I have worked for sitting around. I have even had several comment about how "good" the hay business must be, they never say anything about how long or how much hard work it took for us to get to this point. I just want to protect what I worked long and hard to acquire by having some kind of protection. Thanks to all who replied with the great answers. I will get working on a umbrella insurance policy and schedule an appointment with a tax attorney.


I see plenty of nice trucks driven by hay buyers hauling hay to huge stables that in some cases are air conditioned and heated. The horse business must be pretty good also based on that.


----------



## Lewis Ranch

jd6100d said:


> Also, many of them pick hay up from my barns and see everything that I have worked for sitting around. I have even had several comment about how "good" the hay business must be, they never say anything about how long or how much hard work it took for us to get to this point.


That's one thing that always tends to get under my skin. Customers coming in and complaining about a $40 or $50 roll of hay or prices on squares and then popping off about how good the hay business must be and they always think they should get in. I kindly explain to them how much work and money really goes into the hay and I think I should be getting double what I'm asking. I generally don't hear anymore complaints after that.


----------



## slowzuki

Don't ever get those comments at my place lol.


----------



## JD3430

In my area, you have to be mega-size in the hay sales business to make big money. 
If I shared how much I made making hay, most people would ask me why I bother doing it. 
Probably works out to about 3 bucks an hour. Lol


----------



## urednecku

> Probably works out to about 3 bucks an hour


I'm scared to try to figure out my "hourly wage".

BUT.... I'd still rather be here, sweatin' my back-side off for $3, burnin' diesel riding round & round on my own place than having to put up with the political BS working my last 'job' with the state of FL. Did that for 33 years, had enough of it.

Sorry, rant over!


----------



## deadmoose

Jd- you do have a nice benefit plan though. What is all your equipment going to be worth when the payments go away? Plus it sure beats going to the j o b.

Regarding LLC- for someone with another income source would LLC have to be in the black for a tax advantage? In the red some other income is offset for the tax man while said farm starts up.


----------



## aawhite

deadmoose, I may be wrong, but as the LLC is it's own entity, the revenue should be separate from any off farm income. The LLC would/could pay you a "salary" that would be taxable income, but farm revenue shouldn't impact your taxes otherwise. A lot of it would depend on how it is set up. Again, consulting a tax attorney or accountant would be able to guide you to the best structure.


----------



## slowzuki

Could be wrong but I think LLC is setup to flow through for taxes. We don't have them in Canada, don't have s-corp either. Looks like some states have special rules too, definitely talk to someone who knows your area.

If its flow through there may not be the same tax benefits at high income levels. I did read LLC has better liability protection that corporation. I know in Canada there are positions in corporations that can make you personally liable for tax owing on various things.


----------



## Fowllife

deadmoose said:


> Regarding LLC- for someone with another income source would LLC have to be in the black for a tax advantage? In the red some other income is offset for the tax man while said farm starts up.


Slowsuki is right, an LLC is just a pass through. I used tu have one setup but I ended up shutting it down because it really didn't help any. Mine was a single entity LLC so really the only difference between me & the LLC was a different tax number. All income & all losses go directly to the LLC members. If a married couple that file their taxes together form one then there is no tax benafit. If you file separate then there might be a tax savings. The same thing goes for limiting liability, it still falls to the LLC holders.

With multiple entities there are benifits, with singles, or couples not so much. As mentioned earlier, talk to your tax man though, you may have something going on that would benifit you.

For liability, put buy a nice fat policy.


----------



## triabordofarm

LLC is worth every penny. Use a good Ag attorney, then visit a CPA, also worth every penny.


----------



## Teslan

triabordofarm said:


> LLC is worth every penny. Use a good Ag attorney, then visit a CPA, also worth every penny.


I've heard this said to me again and again, but more pointed from a Real Estate broker perspective. I've thought about it and thought about it. I even have an LLC for my real estate company that my wife and I own because that's how you have to do it in Colorado. But I just can't see any advantage to it besides to make it easier to qualify for a home mortgage (which I don't need). I especially can't see why I would need it for a farm until and if my son starts farming with me in the distant future. So besides just saying that it is worth every penny to shell out thousands to an attorney and CPA give me a couple of examples why it is worth every penny. I just can't see it.


----------



## deadmoose

Teslan- say Horsey gal has good lawyers and expensive horses. She buys hay from you shortly before her horse dies blames your hay. Now she sues you. I believe the LLC could make this ordeal cheaper for you. (Even though in both cases your hay was perfect).


----------



## deadmoose

I think that's the advantage anyway.


----------



## Teslan

deadmoose said:


> Teslan- say Horsey gal has good lawyers and expensive horses. She buys hay from you shortly before her horse dies blames your hay. Now she sues you. I believe the LLC could make this ordeal cheaper for you. (Even though in both cases your hay was perfect).


How would it be cheaper? Still would have to pay an attorney through the LLC. Shouldn't you have all your farming assets in an LLC also including any cash? Still my assets either way. In the LLC or not? So those could be looked at and forced to be sold to pay this lady with her expensive horses that were eating moldy hay for months before she bought mine.


----------



## JD3430

Teslan said:


> How would it be cheaper? Still would have to pay an attorney through the LLC. Shouldn't you have all your farming assets in an LLC also including any cash? Still my assets either way. In the LLC or not? So those could be looked at and forced to be sold to pay this lady with her expensive horses that were eating moldy hay for months before she bought mine.


Then what if all you own is a bunch of old hay equipment worth about 10 grand and a 500 grand insurance policy and she sues you for 1 million. If you have an LLC, it should stop at the value of your equipment at liquidation. Depending on the state you live in, she couldn't go past the LLC. If you don't have an LLc or corp, she can begin suit against your personal assets for the remaining 450 thousand since your LLc assets and insurance only would satisfy 550 grand of the 1 million judgement won against you.


----------



## Teslan

JD3430 said:


> Then what if all you own is a bunch of old hay equipment worth about 10 grand and a 500 grand insurance policy and she sues you for 1 million. If you have an LLC, it should stop at the value of your equipment at liquidation. Depending on the state you live in, she couldn't go past the LLC. If you don't have an LLc or corp, she can begin suit against your personal assets for the remaining 450 thousand since your LLc assets and insurance only would satisfy 550 grand of the 1 million judgement won against you.


Ok that's a good example. Though I'm sure there are ways around the LLC to personal assets.


----------



## JD3430

Teslan said:


> Ok that's a good example. Though I'm sure there are ways around the LLC to personal assets.


Not if you do it right. If you're an idiot and you don't have enough insurance or if you commingle personal and business assets, then you could get hammered.


----------

