Your Aquaculture Business

Introduction

There are approximately 2.3

million farms in the United States,

ranging in size from small parttime

farms to very large operations.

Regardless of size, all farms

are a form of business and can be

organized or structured in several

ways. Individuals involved in the

business of fish farming need to be

aware of the various organizational

stuctures available to them,

including sole proprietorship,

partnerships (general and limited)

and corporations (regular and

subchapter-S). .

The specific circumstances of the

fish farm business dictate which of

these structures is most suitable.

For example, large farms with

numerous employees and a large

investment . requirement may find

it advantageous to consider a more

formalized structure, such as a

corporation. However, most farms -

are not in this category. In fact,

70% of the farms in the United

States fall at the lower end of the

income scale. This group is highly

dependent on non-farm income.

Overall net off-farm income has '

increased from 10% in 1960 to 42%

in 1986. Nevertheless, these small

farms or operations may still

benefit from particular organizational

structures.

This paper reviews the various

forms of organizational structures

which can be utilized in fish

farming businesses and presents

the advantages and disadvantages

of each structure as they relate to

such businesses.

Organizational Structures

Sole Proprietorship

Most farms in the United States are

organized as sole proprietorships.

Under this structure the farmer is

the sole owner, has legal title to the

property, and is self employed.

Management decisions are solely

under the control of the farmer.

Resources for the operation are

limited to that available to the sole

proprietor. With this organizational

structure, personal and

business assets of the owner are

North Central Regional

Aquaculture Center

Publication No. 103

USDA grant # 88-38500-3885

June f992

jointly at risk in the operation.

Liability is not limited to only that

which is invested in the business.

The farmer has total liability for all

payments or actions, whether

incurred personally or through the

farm business. If aquaculturists are

sued for a farm accident, their

home and personal assets may

also be in jeopardy. This is a risky

situation for a farm business that

may be a part-time venture.

Especially, if a substantial amount

of personal assets are involved.

Sole proprietorship is the simplest

form of business organization as

far as start-up and record-keeping

are concerned, but it has its

disadvantages. Sole proprietorship

has been described as a hindrance

to estate planning, farm transfer,

and farm efficiency. However, if

the farm operation will cease upon

the death of the sole proprietor, it

is the simplest structure to liquidate.

Alternative organizational

structures should be considered if

"continuity of life" of the business

is a concern.

Farm efficiency varies with the age

of the sole proprietor. In the early

years of an operation, efficiency is

low, as assets are being accumulated.

Mid-way in the operation, as

the farmer's net worth and risk

increase, the farm is at peak

operating efficiency. But as the

.years goon and retirement is

considered, the operator usually

becomes