Organize your farm business: Sub S Corporation simplifies ownershipBy: Mike Wilson
There's a lot of moving parts to the Vogel Seed farm in Rockport, Ind. Three separate enterprises are managed by four family members in two generations, and there are eight family owners in all.
That's why Jeff Vogel and his brother-in-law Kyle Wilkerson are happy they at least don't need to worry about the farm's business structure. Back in 1980, Jeff's father, Larry, juggling a seed dealership along with grain and livestock enterprises, set up a Subchapter S corporation on the advice of an estate planner. Now all assets, including land and machinery, are in the S corp. That business structure continued to make sense as the farm grew these past three decades.
"There are different ways of doing things, but we've found the Subchapter S makes it easier to pass down assets from generation to generation," says Vogel. "With the Subchapter S, we're passing shares, not acres or equipment. It's pretty complicated when you've got machinery, land or capital items. If everything is broken into shares, you can change ownership more easily."
The S corp worked well in 1990 when Kyle came to the farm after a career in farming and ag lending in Kentucky. And it was needed again in 2003, when Jeff's son Eric returned to the farm after graduating from Western Kentucky University. Kyle's son Alex came back in 2008, after graduating from Vincennes. From the outset, both of the younger farmers drew a salary and received some stock as compensation.
"When the boys came in, they could buy equity shares of the farm," adds Jeff. "We're in our third generation now. We want to try to control ownership and keep it in the family, and so far it's worked out well."
Both Eric and Alex have started buying some land on their own, and that is being held outside of the corporation. That's because they started these farms under USDA's Beginning Farmers and Ranchers loan programs.
Matching employee skills
What also helps is matching key farm personnel to skills and interests. Kyle manages the hay and pasture acres, cow herd and anhydrous applications, while Jeff manages the seed business. Eric specializes in corn, while Alex focuses on soybeans and cattle. Both the younger farmers evaluate technology to make livestock and crops more efficient. In addition, Jeff's mother, Catherine, does much of the bookkeeping and farm records.
"Everybody has their own responsibility here," says Eric. "It's important because then everyone knows what their job is and things run smoothly. Everyone doesn't have to be an expert on everything."
Read part two: How a Sub S Corp helps in a long-range estate planning strategy