If you have plans for the future of your farm or estate to keep up with the modern world, Phil Reed, head of our rural team, believes that governance structures can help, especially with succession plans. He explains how.

With diversification, farms can now have many different facets of their business such as events, property letting, manufacturing and retail. In the past the decisions relating to these businesses could be down to one or two key individuals. However, it could be more advantageous to delegate responsibility to others in the family, to employees or to external professionals.

It’s also a great way to involve the next generation in certain aspects, by giving them responsibility of a discrete part of the business.

We often hear from our clients how this has led to more innovation whilst minimising the risk and without compromising the farm’s core business. The biggest benefit is that they can learn and develop new skills to sustain the business and it facilitates a smoother succession transition, as well as giving everyone more confidence and reassurance.

Diversification can play its part

With diversification, farms can now have many different facets of their business such as events, property letting, manufacturing and retail. In the past the decisions relating to these businesses could be down to one or two key individuals. However, it could be more advantageous to delegate responsibility to others in the family, to employees or to external professionals.

It’s also a great way to involve the next generation in certain aspects, by giving them responsibility of a discrete part of the business. We often hear from our clients how this has led to more innovation whilst minimising the risk and without compromising the farm’s core business. The biggest benefit is that they can learn and develop new skills to sustain the business and it facilitates a smoother succession transition, as well as giving everyone more confidence and reassurance.

As an owner there are a number of options you can take

Depending on how involved you would like to be in the day to day running of the farm or estate. Many estates have a corporate structure in place which links the management of the business to the owners, but many do not and remain in the ownership of one or two individuals or are held under a trust arrangement. Incorporation allows you as an owner to take on a role at board level, for example chairman, which enables you to focus on the strategy and direction of the farm or estate. Alternatively, you may wish to step back completely but retain the rights to vote on key decisions.

If family members are involved in the farm business then they do need to be incentivised, which can be done through salary, bonus or annual dividend, or a combination. It’s also recommended to have a constitution or shareholders’ agreement, which strikes a good balance of rewarding hard work and ensuring older generations have a reliable income when they step back from the business.
We are finding more and more farms and estates looking at traditional business structures and governance to get their affairs in order and to be more profitable. Having a corporate structure can provide significant benefits such as lower corporate tax rates. One popular change is  looking at capital tax planning on transfers of property and other assets into corporate vehicles. This enables a more transparent approach to decision making along with more clarity of income, control and better succession planning.

Any changes need to be done carefully and might be better done over a period of time, particularly if a re-organisation is needed, to ensure all the benefits are realised.

Recommendations

  • Give the younger generation responsibility for part of the business
  • Consider taking on a Board role such as chairman
  • Set up a constitution or shareholders’ agreement
  • Use a corporate structure to minimise tax liabilities

 

Phil Reed is head of our rural sector.  If you would like to discuss this article or any other farming matter please get in touch by email enquiries@stephens-scown.co.uk or telephone 01872 265100.

This article was first published in our rural newsletter Newslink.  

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