Carl Moore doesn’t hide his opinion about farm corporations. In fact, he wants to warn practically every farmer he sees. “I’ve seen too many disasters with farm corporations,” the farm adviser says. “I just shake my head when anyone says they want to incorporate.”
The main reason Moore is so opposed, he says, is that incorporation too often leads to farms that are virtually unmanageable.
“They (lawyers and accountants) tend to forget that there are people involved and they’re what make a farm work, not if a farm is incorporated or not,” says Moore. “Family and business — you can’t separate the two.”
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Small businesses rarely fail because of business structure, Moore says. Instead, they fail because of personalities, and unless you bring extraordinarily effective leadership and communication to the table, the more personalities you get involved in the business, the more problems you should anticipate.
Does incorporation mean you have to balance the ambitions and whims of more people?
Within a couple of generations of incorporation, Moore warns, you can easily go from a manageable corporation comprised of two brothers and their wives to a completely impractical corporation with 32 potential shareholders, some living on the farm and others living many, many miles away.
“By giving your children shares in a farm corporation, in reality you’re saddling them with a diluted management control as the number of shareholders increases,” says Moore.
In a 20-or 30-year period the corporation can comprise three generations, each with different goals and different thoughts for the future. “One shareholder wants to get some retirement money out, a second wants to expand and the next generation doesn’t know what it wants,” says Moore. “It’s just a five-gallon gasoline tank waiting for a match.”
Dividends can be a source of difficulty, says accountant Geoff Garland. For example, if one individual with class A shares wants a dividend of a certain percentage of the farm’s net income, everyone with class A shares has to take the same amount of dividend, even if they’d prefer to leave the money tax sheltered in the corporation.
Then it gets worse, Moore says. In bad situations, the more individuals involved, the more lawyers get involved. “It essentially and almost invariably destroys the corporation assets and destroys most of the families involved,” says Moore. “The results are nothing short of horrendous.”
“My philosophy is that all farms should be a first generation, never more,” says Moore.
Look at options, Moore recommends. For instance, pay wages to your children while they’re growing up and then invest this money so you can help them get a start. That’s exactly what Moore did for his own family and when his daughter wanted to farm, instead of buying shares in a corporation, he helped her buy a farm of her own farm.
