Beginning Farm Business Arrangements

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Beginning Farm Business Arrangements
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Testing Stage p. 1

• Employer-employee arrangements
• Operating agreements

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Employer-Employee Agreement p. 1

• Compensation
• Cash
• Wage and income share
• Incentives
• Bonus payments
• Fringe benefits
• Commodities

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Operating Agreements p. 3

• Beginning operator
• May furnish some personal property such as
  livestock or machinery
• May provide some management as well as labor

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Operating Agreements p. 3

• Agreements should cover topics such as
• Job responsibilities
• Contributions of assets
• Distributions of income
• Method of settling disputes
• Dissolution of the agreement

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Joint Operating Agreement p. 3

• Operators are sole proprietors
• Each contributes assets, management and labor
• Income is shared based on inputs
• Each pays expenses of their assets
• Operating expenses are split

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Joint Operating Agreement p. 3

• Complete inventory should be taken at the
  beginning
• Sale triggers recognition of gain
• Could be transferred by gift
• Could allocate income to pay for inventory
• Could repay at end of agreement

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Enterprise Agreements p. 5

• Beginning operators income is all from one
  enterprise
• Labor for other enterprises may be a source of
  conflict

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Total Farm Operating Agreements p. 6

• All income and operating expenses are split
• Beginning operator acquires more assets over time

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Leasing Considerations p. 6

• Allows effective use of limited capital
• Short or long term
• Land, buildings, machinery or livestock

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Real estate leases p. 6

• Leases for more than a year must be in writing
• 90 days notice is required to terminate a
  year-to-year agricultural lease

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Real estate leases p. 7

• Cash leases
• Crop share leases
• Livestock share leases

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Farm building leases p. 8

• Leasing from builder or bank
• An alternative to financing
• Leasing from a neighbor
• Be careful about cost of repairs

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Livestock leases p. 8

• From leasing company
• From retiring farmer
• Advantages for retiring farmer
• Advantages for beginning farmer