13: Business Structures
13: Business Structures
Registering Your Business Name
If a farm is operating as a sole proprietorship and is using a farm name that does not include the business owner’s real name, then registration of the business name is required. This is intended to help the public identify who owns a particular business. “Assumed Name” certificates—more often called “Doing Business As” (DBA) Certificates are filed with the county in which the business is located. If a farm (sole proprietorship, LLC, or any other structure) also does business under a name other than the official name, then a separate name filing is required. For example, if Perfectly Picked Produce, LLC launches a brand named Perfectly Picked Popcorn, the latter name must be registered so the public knows that Perfectly Picked Produce, LLC is responsible for Perfectly Picked Popcorn.
Business Structures – Legal Organization
While most businesses start out as sole proprietorships or general partnerships, they may eventually find that the legal liability and tax consequences are more beneficial if operating under a different structure. New York State recognizes seven different business structures (excluding organizations such as churches and non-profits):
The simplest form of organization wherein an individual simply declares himself or herself a business operator. No paperwork is needed to file with government agencies to establish the existence of the business. The proprietor has personal liability for the actions and debts of the business.
When two or more people work together to generate a profit from their collective efforts, they have formed a general partnership. No paperwork is need to form this business and partners have personal liability for the acts of each partner.
Also known as a silent partnership wherein individuals combine resources with the intent of generating a profit together, but where one or more partners give up any management of the business. For remaining silent in the operation, that partner generally avoids personal liability for the acts of the business. Active partners are personally liable for the acts of the partnership as a whole.
Limited Liability Company (LLC)
One or more people can form a Limited Liability Company, which protects the owners’ (or members’, as they are called) personal property from business liabilities, in many circumstances. An LLC is formed by filing paperwork with the state. This business structure must be maintained by filing annual tax statements and fulfilling reporting obligations. The liability protection offered by an LLC is the most secure when the business owner takes steps to separate his or her personal activities from the business activities by, for example, maintaining a separate bank account for the business.
Business C Corporation
One or more people can form a Corporation, which protects the owners’ (or shareholders’, as they are called) personal property from business liabilities, in many circumstances. A Corporation is formed by filing paperwork with the state. This business structure must be maintained by filing annual tax statements and fulfilling reporting obligations. The liability protection offered by a Corporation is the most secure when the business owner takes steps to separate his or her personal activities from the business activities by, for example, maintaining a separate bank account for the business. Corporations must adopt bylaws, appoint officers, and hold an annual meeting. One person may hold all officer positions.
Business S Corporation
An S Corporation is simply a business that files under the S subsection of the corporate tax code, which is named the “S” subsection for “small business.” An S Corporation is not a separate business structure at the state level, and both corporations and LLCs can choose this tax status. To be eligible to file under the S section, the entity must fulfill specific IRS qualifications. The main advantage of this tax classification is the ability to avoid “double” taxation and to re-classify income as dividends, if the owner is making more than the average owner in his or her field.
An organization owned by members who contribute equity toward the business and share in profits generated, formed by filing with the state and has similar governance as a C corporation. Voting is either one vote per member or in proportion to patronage of the cooperative. Members have limited liability.
For more information:
- Forming a Business in NY: An Overview
This brochure by the NY Dept. of State has information on six types of business structures including what forms need to be filed, the business’s lifespan under that structure, personal liability and tax information.
- Doing Business in New York State: Structures and Strategies
Access this publication from the Dept. of Applied Economics and Management at Cornell for help on navigating the legal maze of business structures.
- Farmers Guide to Business Structures
Farm Commons has an exhaustive resource on choosing a business structure for farmers. The guide contains a flowchart to assist farmers in quickly identifying the most suitable options. It also contains detailed operating agreements, bylaws, meeting minutes and more. The guide is available as a free pdf download at Farm Commons or for purchase in print from the Sustainable Agriculture Resource and Education.