Farm Business Organization: Choosing the Best Structure for New State

This assignment requires an analysis of the optimal business structure for a New State farm, owned by Alex, Bill, Carl, and Devon, and managed by Xavier. The assignment considers the owners' desire to minimize taxes, avoid personal liability, and keep the business within the family. The assignment also evaluates the implications of a proposed expansion involving a $500,000 loan and the addition of a vineyard. The analysis must consider the strengths and weaknesses of various business structures, including sole proprietorships, partnerships, LLCs, and S-corporations, and must make recommendations based on the specific facts of the situation and the owners' Christian worldview. The assignment assumes that New State's business organization statutes and taxation follow the federal regime.

Alex, Bill, Carl, and Devon inherit from their Dad an operating organic farm in New State. The farm
includes an orchard, various vegetable garden tracts, fields usually planted in grains, several trout ponds,
and a poultry operation. In addition to selling the various organic products, the farm usually invites the
public in each year during the fall for a corn maze, pumpkin patch, and other amusements. Alex, Bill, Carl,
and Devon were never interested in farming, so their cousin, Xavier, was trained to run the farming
operation by Dad and has been helping Dad do so for the past 5 years. Xavier wants to continue to do
that, and Alex, Bill, Carl, and Devon are willing for him to continue to do that. Therefore, they want to form
a business entity to own the farm, which Dad ran as a sole proprietorship. Obviously, they don’t want a lot
of formalities or complexities to “fool with” since they want Xavier to handle the day-to-day operations of
the farm. Further, they want to minimize their taxes on the entity, they want to avoid any personal liability
from the farming operations, and they want to keep the business in the family (it might be fine to sell
interests in the business to their kids or to Xavier, but they would not want a stranger owning part of the
business).
They have discussed the deal with Xavier, and he is very excited. In fact, he proposes that the business
borrow an additional $500,000 and expand its operations to include a vineyard. There is a bank willing to
offer financing, but Alex, Bill, Carl, and Devon would have to be willing to sign personal guarantees. They
are still thinking it over, but they probably will proceed with Xavier’s plan for expansion.
They want you to be their accountant in New State, and therefore they come to you for advice as to which
would be the best form of business organization to use for operating of the farm.
Alex, Bill, Carl, Devon, and Xavier are all Christians and want their business to be organized and
operated in accordance with the Christian worldview.
In view of their situation described above, which form of business organization would you recommend?
Explain fully, including the strengths and weaknesses of each form of business organization and be sure
to make application to the specific facts of this situation. Assume for the purposes of this assignment that
New State has typical statutes governing business organizations and that New State’s taxation of
business organizations follows the federal regime.