Farmers: Organising Your Affairs – Stage 2: Deciding Upon The Best Business Structure for Your Farming Enterprise

Choosing the appropriate business structure is a crucial decision for any farm owner, as it influences liability, taxation, and operational flexibility. The four primary structures to consider are Sole Trader, Partnership, Limited Liability Partnership (LLP), and Limited Company. Each option has benefits and drawbacks, and therefore bespoke advice should be obtained to determine which is the best option for your specific personal and business needs.

Sole Trader

Operating as a Sole Trader means you are both the owner and operator of the farm. This structure is straightforward to establish, with minimal legal formalities. However, a significant drawback is unlimited liability; you are personally responsible for all debts and obligations of the farm. According to a Defra sample, 52% of farms operate as Sole Traders.

Partnership

In a general partnership, two or more individuals share ownership and operational responsibilities. This arrangement allows for shared decision-making and resources. However, like Sole Traders, Partners have unlimited liability.

It is advisable to formalise the arrangement with a Partnership agreement detailing capital contributions, profit-sharing, loss allocation and what happens on the death of a Partner, amongst other things. You can read our previous article on the need for a Partnership agreements here.

Approximately 40% of farms operate under a general partnership, it being a practical and favoured way to bring the younger generation into the farming business whilst ensuring the older generation retain in an income.

Limited Liability Partnership (LLP)

An LLP combines elements of partnerships and companies, offering limited liability to its Partners. This means personal assets are generally protected, with liability limited to the amount invested. LLPs require a formal agreement and involve more administrative duties than general partnerships.

LLP’s are taxed in a similar way to general partnerships.

Limited Company

A Limited Company is a separate legal entity from its owners, providing limited liability protection. This structure can offer tax advantages and is increasingly popular among farming enterprises. However, it involves more complex administration, including compliance with company law and filing requirements. Recent changes in corporation tax rates and National Insurance Contributions may influence the decision to adopt this structure.

Recent Developments

It is important to note that proposed changes to Inheritance Tax rules, set to take effect in April 2026, may impact farming businesses. The new rules propose a 20% Inheritance Tax on agricultural assets exceeding £1 million, which could affect succession planning and the choice of business structure.

How Butcher & Barlow can assist

Selecting the right business structure depends on various factors, including liability preferences, tax considerations, and administrative capacity. A change in circumstance – inheritance of the farm, a matrimonial separation, diversification – needs advice from all your advisors; accountants, land agents, lawyers and often your bank manager, to develop a balanced, workable business strategy.

Butcher & Barlow are happy to meet with all generations of the farming business, and your wider business support team, to assess your specific circumstances and explore the options available to find the best solution for your circumstances.

Contact Jonathan Aldersley on 01606 334309 or email jaldersley@butcher-barlow.co.uk