More than 90% of farms are family-owned business operations in Canada involving more than a million people. Over the past 10-15 years, the increasing number of farm bankruptcies has caused the number of family farms to plummet.
Hence, farm groups started considering the importance of placing sound legal footing as the base of farm businesses. This protects the family farm as a unit and individual farmers alongside.
Alongside Canadian farm laws, it might be beneficial to learn more about specifically Saskatoon farm and agricultural laws. Here, we’re discussing Canadian farm laws and many aspects of them in this article for your benefit.
Farm Laws in Canada: Everything You Need to Know
The farming industry requires more intricate approaches than others due to the higher risks, stern marketing structures, and especially, the economic and social complications. There’s also the consideration of the impact of the recent North American Free Trade Agreement.
Marketing regulations differ depending on the type of product, the intended market, and other factors. Hence, tax advisors, lawyers, and other professionals refer to and manage most of these specified areas.
The business relationship between the owner of the farm and their business and between them and their families are the 2 broad areas of business relationships. These relationships have specific implications and effects on farming as a whole. Following are the most common aspects of farm laws discussed briefly:
Transfer Planning for Family Farms
To develop an effective farm transfer plan, there needs to be a number of considerations to ensure the needs of all involved parties (the farmer, children and spouse, children who take over, and those who don’t).
A significant amount of necessary data needs to be collected to reach an informed decision regarding the farm laws (including income and expense calculation, determining net worth, financial requirements for retirement, discussion of long-term and immediate goals, reviewing anticipated income and debt load, etc.).
All parties also need to consider relevant tax laws, retirement needs, methods to keep the farm laws intact or expand the farm laws, maintenance of goodwill as well.
Planning Farm Estate
Any farm estate plan typically defines the equitable property transfer between generations. This can be implemented during the lifetime or upon the death of the owner. Tax and legal implications must be considered to make the estate plan fair and effective. This also minimizes tax liability upon transfer.
A drawn will must correlate with the farm laws and estate transfer plan. To plan the will, there need to be the following considerations:
- Specified asset distribution
- Debt payment schedule
- Executor appointments
- Guardian appointment for children considered minors
The category of business arrangements, insurance coverage, and transfer mechanisms must also be chosen while developing the will. The farm laws need to obtain sound insurance, financial, legal, and accounting advice at this point.
Business Structure for the Farm
If there are 2 or more people involved in a farm laws business, 2 major methods can be used:
- Partnership farm (general or limited)
- Limited corporation farms
Both have their own set of benefits and shortcomings, and sometimes, special considerations with combinations of the two can be warranted.
In general business terms, the relationship between people carrying a business with a common goal of profit is called a partnership. Partnerships are not considered legal entities.
The members of the partnership bear all obligations and rights. Each partner is considered an agent of the partnership and has the authority to make the other liable for obligations and debts incurred by the whole partnership.
General partnerships consist of at least two partners severally and jointly responsible for the debts of the firm to the extent of satisfying any insufficient investment to the creditors.
Both partners hold a right of indemnity over the other. Hence, sufficient mutual respect and understanding are required for proper operations and to avoid conflict.
One or more general partners and one or more limited partners consist of limited partnerships. Limited partners can only be held liable to the extent of their involvement.
However, if the limited partner allows their name to appear in the farm’s name and publicly conducts or helps to operate the business, their liabilities may increase up to that of a general partner.
Different partners may contribute varying levels to the capital. The level of interest paid to any partner depends on the level of contribution made by them. However, the partner contributing less capital may contribute most in other sectors.
In such cases, the positions may be equated to ensure equal division of profits.
A legal entity with the rights, capacity, privileges, and powers of a natural person is considered a corporation. This form of business structure provides possible income tax benefits accommodations for varieties of business relationships, can facilitate estate planning, and provides limited liabilities.
The identity of a corporation is distinct from the shareholders and is perpetual. The investment opportunities and management decisions are independent of individual partners or owners. Purchasing shares implies investment in the corporation with the price and amount allotted by the directors.
Multiple classes of shares can be made available carrying separate levels of restrictions and rights. The attributes and nature of the shares are determined by directors considering the business nature.
There are provisions and relevant aspects of Corporation Law that need to be considered before the incorporation of any farm laws or other business.
Considering the above-discussed business structures and legal aspects of farms, hopefully, you can make more informed decisions regarding your farm and which structure suits you best. Follow the legal guidelines as described and seek professional counsel when needed for financially and legally sound outcomes.