Farm Business Structures and their Crop Insurance Signature Requirements
There are many ways to organize your farm’s business structure, and each structure type has its own benefits and problems. Additionally, each business entity type requires different signature requirements for insurance paperwork, which we will discuss below.
Individual and Sole Proprietorship.
A sole proprietorship, in many cases referred to as an individual, is where one person is the only owner of a farm operation, and not on an employer’s payroll for the work being done. This form of business entity is one of the easiest to form, as it is created automatically when the right conditions are met. While some paperwork may still be needed depending on the location of the business, a sole proprietorship typically needs little to no paperwork or licenses unless the local laws require otherwise.
While the low effort required to start a sole proprietorship makes it quite useful, It is not without its downfalls as well. The biggest risk for a farmer wanting to run their operation individually as a sole proprietorship is liability. With this business structure, there is no protection for your personal assets should something go wrong with the business, as you are personally liable for any business-related obligations.
Signature Requirements
When Signing as an Individual:
[First Name][MI][Last Name]
EXAMPLE: Jim E. Smith
When Signing as an Individual Operating as a Business Option 1:
[Company Name] company by [First Name][MI][Last Name] Sole Owner
EXAMPLE: Winchester Farms Company by Elisa L. Winchester, sole owner.
When Signing as an Individual Operating as a Business Option 2:
[Company Name] company by [First Name][MI][Last Name] Sole Proprietor
EXAMPLE: Winchester Farms Company by Elisa L. Winchester, sole proprietor.
Partnerships
There are two different types of partnerships. A general partnership, and a limited liability partnership. While general partnerships are incredibly easy to form, some even forming accidentally, they also tend to struggle with liability issues. In contrast, a limited liability partnership offers more protection, though it also takes more work to set up.
General Partnership
General partnerships are similar to sole proprietorships in regards to how easy they are to create. Again, little to no document filings are needed unless a local law requires it, making it easy to stumble into one without fully realizing it. Unlike its sole proprietor cousin, a partnership mainly differs by being a business structure formed by 2 or more people. Unfortunately, while two heads are often considered better than one, double the owners can bring double the trouble for a partnership. If one partner takes an action for the partnership, both parties can be held liable, even if the other partner had nothing to do with the decision and implementation.
Signature Requirements
Partnership Option 1:
[Partner 1 Last Name] and [Partner 2 Last Name] A Partnership by [Signing Partner Full Name], A Partner
Example: Metcalf and Hoover, A Partnership by Jeffery Metcalf, a Partner.
Partnership Option 2:
by [Signing Partner Full Name], Partner
Example: by Jeffery Metcalf, Partner
Limited Liability Partnership
A Limited Liability Partnership is fairly similar to a partnership but requires more documentation while providing more liability protection. This type of partnership is commonly used for businesses such as law offices and accounting firms. The exact protections and requirements of an LLP can differ from state to state, so make sure to investigate your state’s laws before attempting to form one.
Signature Requirements
Partnership Option 1:
[Partner 1 Last Name] and [Partner 2 Last Name] A Partnership by [Signing Partner Full Name], A Partner
Example: Metcalf and Hoover, A Partnership by Jeffery Metcalf, a Partner.
Partnership Option 2:
by [Signing Partner Full Name], Partner
Example: by Jeffery Metcalf, Partner
Limited Liability Company
A limited liability company, or LLC, is another popular business entity type often used by small and medium-sized businesses. While it does take more paperwork, an LLC is still typically easy to start and offers liability protection that a sole proprietorship can’t. While a sole proprietorship or general partnership can have very little actual structure, an LLC is structured more like a normal corporation.
Taxes though, can be an interesting topic when it comes to LLCs, as there are both benefits and problems that must be faced when running a limited liability company. Again, each state has different regulations for LLCs, so make sure to investigate your local regulations before forming one.
Signature Requirements
LLC Option 1
[Company Name] LLC by [First Name]Last Name]
Example: Ingval Acres, LLC by Heather Ingval
LLC Option 2
by [First Name]Last Name], President
Example: Heather Ingval, President
LLC Option 3
[Company Name] LLC by [First Name]Last Name], President
Example: Ingval Acres, LLC by Heather Ingval, President
Corporations
Corporations are much more complex than the average partnership or sole proprietorship and are typically owned by one or more shareholders. Corporations also tend to be the business entity used by many of the big-name brands we see every day. There are two main types of corporations, the S Corporation, and the C Corporation. Both business entities require a board of directors to commence operations as a corporation, though some states allow a single board member on the board of directors.
Corporations are also the most paperwork-intensive of the business entities we have discussed, requiring far more effort to set up. For more information on both C and S corporations, take a look at this article from Columbia Law School.
C Corporation
A C corporation is considered legally distinct from its shareholders. As such, the shareholders are not personally liable for corporation debts or actions like a sole proprietorship would be. As its own entity, separate from the individual shareholder, C corps can sue others, get sued, own assets, pay federal and state taxes, and are capable of borrowing money from financial companies.
The main differences the C corporation has from its S corporation cousin lie within taxation and restrictions on stocks and stockholders. A C corp has no major restrictions on who can own shares, or how many they sell, and can also issue several different classes of stock.
Signature Requirements
Corporation Option 1:
[Company Name], Inc. by [First Name][Last Name], [Title]
Example: Weathering Farms, Inc. by Joseph Harvey, President
Corporation Option 2:
by, [First Name][Last Name], [Title]
Example: by Joseph Harvey, President
Corporation Option 3:
[Company Name] by, [First Name][MI][Last Name], [Title]
Example: Weathering Farms by, Joseph T Harvey, President
Corporation Option 4:
[First Name][MI][Last Name], [Title] of [Company Name]
Example: Joseph T Harvey, President of Weathering Farms
S Corporation
An S corp is a type of corporation usually formed out of a C corp. In fact, the S corp can also be seen as a tax designation. In the case of an S corp, it passes all its taxable credits, income, losses, and deductions directly onto the shareholders.
Unlike the standard C corp, the S corp does have a limit of 100 total shareholders and limits on who or what those shareholders can be. Additionally, the S corp is only capable of having a single class of stock. However, the benefit the S corp gains is allowing it to use pass-through taxation to its shareholders.
Signature Requirements
Corporation Option 1:
[Company Name], Inc. by [First Name][Last Name], [Title]
Example: Weathering Farms, Inc. by Joseph Harvey, President
Corporation Option 2:
by, [First Name][Last Name], [Title]
Example: by Joseph Harvey, President
Corporation Option 3:
[Company Name] by, [First Name][MI][Last Name], [Title]
Example: Weathering Farms by, Joseph T Harvey, President
Corporation Option 4:
[First Name][MI][Last Name], [Title] of [Company Name]
Example: Joseph T Harvey, President of Weathering Farms
Not every farm will neatly fit into one of these business structure categories. If you are ever unsure exactly how you should sign your crop insurance paperwork, make sure to reach out to your agent for more information.