How to Start an Equine Business: Formation and Structure
Over the years, the equine industry has continued to grow, and as of 2023, it has reached an estimated $102bn in the US in 2023. The industry has provided a large economic impact in the work field, funding 1.7 million full-time jobs worldwide. Starting an equestrian business can be an extremely rewarding investment by growing a successful organization passionate about horses. Equestrian businesses require heavy attention to legal details and attentive planning, but with hard work and dedication, it is an achievable goal.
The Different Types of Business Structures
The first step to starting an equine business is deciding which legal business structure best fits your situation. Factors that play into determining the best option for you depend on liability, number of owners, and tax considerations. Some major types of ownership are Sole Proprietorship, Partnership, Limited Liability Company (LLC), and Corporation.
Sole proprietorship is the most common type of business. They are run by a single owner who is responsible for all liability, losses, and profits.
Advantages:
- In control of all important decisions
- Quick and easy setup
- Low fees and costs
- Most simple record-keeping
- Not double taxed
Disadvantages:
- All liability is on the individual
- Pays self-employment taxes
- Ceases when individual dies
General partnership is an arrangement between two or more individuals, and they are equally responsible for all liabilities, profits, debts, and taxes.
Advantages:
- Easily formed
- Benefits from both individuals’ unique talents
- Not double taxed
Disadvantages:
- Books must balance between partners
- Liability is on both partners
- No tax-free benefits
- Ceases when one partner leaves or dies
Limited Liability Company (LLC) is the most flexible form of business with two or more members.
Advantages:
- Members have limited liability
- Flexibility in stock investing and profit sharing
- Less paperwork and fewer costs
- Not double taxed
- Personal property is separate from the business
Disadvantages:
- Needs more than two members to start
- State laws may limit the LLC
- Only “1 Person” on FSA payments
- Member pays self-employment tax on their portion of income
- Ceases when a member leaves or dies (Flexibility available via Operating Agreement)
Corporation: The most common type of corporation seen in the equine industry is an S Corporation, which has 100 or fewer shareholders.
Advantages:
- Requires 1 stockholder
- Stockholders have limited liability
- Distributions are exempt from self-employment taxes
- Not double taxed
Disadvantages:
- Only one class of stock
- Limit of 100 shareholders
- Stockholder receives wages from corporations
Factors to Consider When Selecting Equine Business Structure
Sole proprietorships are in full control of all important decision-making and are reliable for all liabilities. There is no legal filing required, but all profits are taxable at the individual level by the Internal Revenue Service and are to be reported on Schedule C or F as self-employment income.
Individuals in General Partnerships are equally responsible for all liabilities, profits, debts, and taxes. All individuals also have an equal say in all decision-making. Partners must file separate individual 1065 tax forms with the agreed-upon split income.
IfLimited Liability Companies operate according to the rules of the LLC, they provide extra coverage of liability protection and have pliable options for transferring any land or business ownership. The LLC has the option to report taxes as either a partnership or a corporation and is formed when Articles of Organization are filed with the Secretary of State.
S corporation owners consist of those who are holders of the corporation’s common stock, and they are not liable for any actions of the corporation. Their earnings are taxed at the individual level, and all have to file a separate tax return on Form 11120-S. Their income is reported on corporate tax returns and is sent through the shareholders’ individual income tax returns.
The Formation Process for an Equine Business
After you decide what business structure suits you best, you must register your company’s name with the Secretary of State office. Depending on the type of business, you will need to acquire licenses and permits. All equine business forms must be filed at the federal, state, and local levels. After submitting all required documents, your business must obtain a federal tax identification number from the Internal Revenue Service and register for both state and local taxes. Some examples of taxes that may apply to your business are sales taxes and employment taxes. It is important to protect your business from any injuries to the horses, riders, and any property damage. To do so, it is heavily suggested to get insurance covering the service(s) you offer such as liability, property, or equine insurance. Another way to protect your business is creating contracts and waivers to be reviewed by an attorney to ensure it complies with all laws available to you. Contracts and waivers vary by business and can include boarding contracts, lesson terms and agreements, and liability waivers and assumption of risk agreements. The last and most crucial step for equestrian business owners is tracking all income and expenses and having a detailed record book. If you struggle to stay organized or do not have the time and resources to keep an accurate record, it is recommended to hire a professional bookkeeper or use accounting software. Clayborne & Wagner Equine Law Division has experience in the equine accounting industry and can help provide referrals that best suit your company.
Seeking Legal Guidance When Starting Your Equine Business
With a passion for horses, the equestrian industry is the perfect place to start a business. Each of the four business structures possesses its own set of rewarding advantages, but all require proper legal compliance for success. When forming your equine business and getting it off the ground, it can be helpful to seek the legal guidance of an experienced equine law attorney to ensure the proper licenses and compliance. Clayborne and Wagner’s Equine Law Division offers 30-minute equine business consultations for a prepaid fee of $150.00. Request your consultation today: https://www.cswlawllp.com/equine-law-services/.