Considerations When Incorporating the Family Farm

I. Introduction II. Advantages of Incorporating … A. Limited Liability … 1. Contractual … 2. Tort: Insurance … 3. Limited Liability Denied … a. Misuse of Corporate Entity … b. Under Capitalization … B. Advantages of Debt Financing … C. Flexible Transfer of Property … 1. Inter Vivos Transfers … 2. Estate Planning … D. Improved Credit … E. Fringe Benefits … F. Social Security … G. Workmen’s Compensation III. Initial Fees IV. Problems Concerning Control of the Farm Operation … A. Minority Representation on the Board of Directors … B. Other Control Devices of a Minority Stockholder … C. Stock Transfer Restrictions … 1. First Option Plans … a. Who Should Have the Option … b. What Transfers Are Covered by the Restriction? … c. How Long Should the Option Period Be? … d. How Is the Option Price Determined? … 2. Agreements to Purchase Upon the Death of a Shareholder: Business Insurance V. Tax Considerations … A. Tax-Free Transfer of the Property to the Corporation … B. Methods to Reduce Double Taxation … 1. Salary Deductions … 2. Employee Bonuses … 3. Retained Earnings … 4. Subchapter S Election … C. Estate and Gift Taxes and Stock Valuation Problems … 1. Estate Tax … 2. Gifts … 3. Valuation of Close Corporation Stock … D. Capital Gain and Losses … E. Income Tax Consideration under Section 691 .. F. Excise Taxes … 1. Federal … 2. State VI. Conclusion