Table Of Content«ANA0IANA
5S 26 B94
Ownership
AND
Farm
Transfers
Issues for
Multi-family
Businesses
Digitized by the Internet Archive
in 2015
https://archive.org/details/ownershipfarnntraOOalbe
Ownership
AND
Farm
Transfers
Issues for
Multi-family
Businesses
Farm Business Management Branch
Alberta Agriculture, Food and Rural Development
Disclaimer
This publication contains a discussion of issues
related to preparing a farm business agreement. The
purpose of the publication is to provide information
that families can use to discuss alternatives with
their lawyer and accountant. It is not intended for
any other purpose. While every effort has been made
to ensure that the information is the publication is
correct at the time of printing, neither the Crown, its
agents or employees, nor the authors of this
publication, assume any responsibility or liability
whatsoever for any financial loss or damage suffered
as a result of the publication or use of these
materials, or as a result of any changes in the law
after publication of these materials.
It is recommended that the professional services of a
lawyer or accountant be sought in dealing with
specific problems.
Published by:
Alberta Agriculture, Food and Rural Development
Publishing Branch
7000 - 113 Street, Edmonton, Alberta
Canada T6H 5T6
Editor: Gerard Vaillancourt
Graphic Designer: Wendy Luedtke
Typographer: Sherrill Strauss
Copyright © 1994. All rights reserved by her Majesty
the Queen in the right of Alberta.
No part of this publication may be reproduced, stored
in a retrieval system, or transmitted in any form or
by any means, electronic, mechanical photocopying,
recording, or otherwise without written permission
from the Publishing Branch, Alberta Agriculture,
Food and Rural Development.
ISBN 0-7732-6062-5
Printed February 1994
Contents
Preface
Introduction i
Family business issues 3
Matching Dreams To Reality 4
Is The Business Profitable 5
Can We Afford A Multi-Family Business 6
Do We Want To Farm Together 10
. Who Can Work Together
• Goals
Analyzing The Situation 1 5
• Profitable, Affordable And Desirable
• Profitable, Affordable Not Desirable
• Affordable, Desirable Not Profitable
• Profitable, Desirable Not Affordable
• Unworkable Situations
Subsidizing Farm Transfers 18
• Wages Or Salaries
• Reduced Asset Values
• Lenient Repayment Terms
• Redistribution Of Income
• Off-farm Income
Special Multi-Family Situations 20
• Disabled Children
• Parents Remarr5dng
• Marriage Of The Children
• Divorce
• Death Of A Farming Child
• Liability For Debts Or Obligations
• Liability For Wrongful Acts Or Omission
Management AND OPERATING issues 23
One Business Or Two 24
Management Agreements 25
• Division Of Management
• Functioning As Management
• Decision Making
Working Agreements 29
• Division Of Labor
• Scheduling
Sharing Profits 30
Withdrawing Money 32
iii
Banking Procedures 34
• Separate Business Accounts
• Common Business Account
• Both Joint And Separate Operating Accounts
Conservation Of Capital 36
Winding Up The Business 37
Asset OWNERSHIP ISSUES 39
Ownership Of Land And Buildings 40
• Individual Ownership
• Pledge The Land As Security
. Joint Ownership Of The Title
. Life Estate Title
• Sale With Mortgage or Agreement For Sale
• Transfer To A Partnership Or Corporation
. Transfer The Title
Ownership Of Machinery And Equipment 44
• Individual Ownership
• Joint Ownership
• Owned By The Business
Ownership Of Inventory (Livestock And Crops) 46
Growth In The Value Of Land 47
Housing 49
Wills And Estate Plans 51
• Fee Simple
• Joint Ownership
• Partnership or Corporation
Taxation Issues 53
• Taxation On Land Transfers
• Taxation On Machinery And Equipment Transfers
• Taxation On Inventory Transfers
• Tax Strategies
Summary 57
IV
Preface
Most farm businesses are owned, managed and operated
by families. While this adds a degree of continuity and
stability to the operation, most will be owned and operated
for a number of years jointly by two or more generations.
This common ownership and operation of the business,
with its eventual transfer to the younger generation, gives
rise to the need for sound business agreements.
This publication provides a basic understanding of some of
the issues farm families face when considering a joint
business operation. These issues should be considered
before exploring more detailed publications on
incorporation, partnerships, joint ventures or tax
management strategies.
This publication was written with the advice and expertise
of Garry Bradshaw, management specialist. Merle Good,
provincial tax specialist and Paul Gervais, agricultural
economist, all with Alberta Agriculture, Food and Rural
Development.
Dr. Glen Mumey, Head, Department of Finance and
Management Science and Dr. Len Bauer Professor, Rural
Economy of the University of Alberta provided valuable
insight to the overall direction of the publication as well as
review of the specific material.
Ted Darling, farm management specialist, with Alberta
Agriculture, Food and Rural Development reviewed drafts
of the publication and provided insight into the technical
and extension aspects of the publication.
i
Introduction
Two or more families operating a business together
requires an understanding of the various personaHties and
must have the abihty to communicate. This is especially
true when these families involve parents and children or
brothers and sisters. Business agreements, while not
ensuring the people will work together, can help by
outlining the ownership, management and operating
arrangements.
Formal agreements may seem too "formal" for families who
prefer to "play it by ear" and deal with issues as they come
up. This may be okay, but when it doesn't work it is often
too late or too difficult to deal with a crisis. A few days set
aside to examine issues early in the life of a business will
pay off later.
Although the final form of the business arrangement is
important, it is often the process of working and talking
through the issues and finding solutions that pays
dividends. Developing a process to recognize and deal with
major issues is important in today's fast moving and ever
changing economic environment.
Take a few minutes to look over the contents of the book
before reading the detailed discussions. If you have already
made many of the preliminary decisions, you may wish to
jump ahead into the specifics of the various operating or
ownership agreements. If you are just starting out, work
through the issues and alternatives first.
1
1
