Should Your Land Purchase Be Set Up in an LLC or Corporation?

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.

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.

5 Benefits of Setting Up an LLC

1. Liability Protection

An LLC provides limited liability protection, meaning your personal assets are generally protected from business debts and legal claims.

2. Tax Flexibility

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.

3. Simpler Management

LLCs have a more flexible and less formal management structure compared to corporations. There are fewer requirements for meetings, record-keeping, and reporting.

4. Profit Distribution

LLCs allow for flexible profit distribution among members, which doesn’t have to be proportional to ownership percentages.

5. Ease of Formation

Forming an LLC is generally simpler and less expensive than forming a corporation. The ongoing compliance requirements are also less burdensome.

3 Disadvantages of Setting Up an LLC

1. Self-Employment Taxes

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.

2. Limited Growth Potential

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.

3. State-Specific Rules

LLC regulations and benefits can vary significantly by state, which may complicate multi-state operations.

5 Benefits of Setting Up a Corporation:

1. Liability Protection

Like an LLC, a corporation provides limited liability protection, potentially safeguarding personal assets from business liabilities.

2. Tax Advantages

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.

3. Raising Capital

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.

4. Perpetual Existence

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.

5. Employee Incentives

Corporations can offer stock options and other equity-based incentives to attract and retain employees.

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3 Disadvantages of Setting Up a Corporation

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