 The Farm to Food Opportunity online series was funded by a grant from the USDA Agricultural Marketing Service. This module is about business structures. Please share your feedback using the evaluation link found in the video description below. Today's topic is business structures and how food hubs can be internally organized. The selection of a legal structure can have long-term financial implications for a firm's owner, their heirs, and the continued existence of the agribusiness. We are going to learn about the different implications, like legal, income, and tax implications, of selecting a specific legal structure. We are also going to see why it is important to consult with professionals on this decision. We are going to be going over briefly the three main types of legal structures used by food hubs. While farmers and agricultural producers of all types understand crop production and farm management, the changing environment of federal and state laws, particularly tax laws, makes it imperative that anyone considering starting up a new food hub in Alabama should seek professional advice on tax and legal issues. Tax laws and tax rates change periodically, which affects agricultural enterprises no matter what type of business structure it operates under. Therefore, annual tax planning may be required to better manage income and other taxes paid by the enterprise or its owners. Financial record keeping for tax purposes can be simple or complex. It is tremendously helpful to find assistance to maintain accurate and complete books and records. To better help understand how regional food hub networks are organized as business entities, Alabama Cooperative Extension System has commissioned a report for potential food hub producers, investors, and partners for a possible food hub network in our state. This report is entitled, A Financial Model and Scenario Analysis for a Regional Food Hub Network. Today's presentation contains excerpts from this report. This is a picture of the title page of this food hub model and analysis. We hope that many of you will have the opportunity to study this document in more detail. The Alabama Cooperative Extension System and Auburn University asked Matson Consultants, LLC, to develop a report with a financial model and scenario analysis for a regional food hub in Alabama. Matson Consultant has written numerous USDA position papers and analysis for food hubs in other areas of the country. Alabama Extension Administration believes that Matson's experience in food hubs can also be useful in understanding the challenges of food hubs here in Alabama. Please contact Ruth Brock for access to the report. Her email is rlw0031 at aces.edu. It is important to think about the differences in a for-profit versus a non-profit organization. Non-profits can be exempt from taxes and can garner funding from grants that for-profit organizations cannot. Also, the profits of a non-profit food hub go back into the organization and the assets are shared to other non-profits in the case of a dissolution. For-profit organizations, profits are returned to the owners, they are subject to taxes. Assets belong to owners in case of a dissolution and funds are often raised with investors and shares of the business. There are three typical types of legal structures in food hub operations. These are corporations, limited liability companies, and cooperatives. A corporation is a legal entity that is separate and distinct from the shareholders who own it, from the individuals who manage it and from its employees. It is created by state law and organized to carry on a business for profit or non-profit. The corporation is a legal person in the eyes of the law that is separate from its shareholders and has most of the legal rights and duties of an individual. A corporation has a life of its own that can go on. It can enter into contracts, transact business, own property, sue and be sued. Food hub corporations operating for profit are typically C corporations or S corporations. One of the major advantages of a C corporation is that it acts as a legal entity that exists separately from its owners. Additionally, control of the corporation depends on stock ownership. Stockholders are at risk only for money they have invested in the stock of the corporation. The major disadvantage of a corporation is that double taxation occurs because the business exists as a separate entity. In other words, the corporation will file a corporate tax return and pay taxes, as well as its shareholders who also file personal taxes, returns and pay taxes. While an S corporation has many of the basic advantages of a general corporation, there are unique advantages to an S corporation. S corporations, while they do file a corporate tax return, do not pay separate corporate income taxes. They are a pass-through entity with profits and losses flowing directly through to stakeholders. Additionally, S corporations are popular because they combine many of the advantages of a sole proprietorship, partnership and the overall corporation form of business. Stockholders, also like shareholders in an S corporation, are at risk only for the money they have invested in the stock of the corporation. The major disadvantage of an S corporation is that there are restrictions on the number and type of shareholders, as well as limitations on the amount of passive income the S corporation can earn. A limited liability company, commonly called an LLC, is a hybrid of a corporation and partnership that is designed to give its owners the advantages of each legal structure. Some of the advantages to forming an LLC are the fact that it is a separate business and tax entity. Essentially, there is a legal boundary between personal assets and business assets. And similar to an S corporation, LLC income is passed through to the individual investor. This allows them to escape double taxation. A disadvantage to forming an LLC is that drafting the agreement can be fairly complex. A cooperative is a business owned and democratically controlled by the people who use its services and whose benefits are derived and distributed to the users. These user owners are called members. A cooperative is headed by board of directors and members hold voting power within the business. Some of the advantages to forming a cooperative is that that business structure is widely known, is very familiar to consumers. A co-op's intent is to maintain or increase market access for its members. They often allow producers to have access to better pricing and marketing opportunities, and it also helps reduce risk for members. Again, another disadvantage to forming a cooperative can be that they are complex to organize and manage. To summarize today's presentation, let's review the key points covered. A regional food hub is a business entity. There are three typical types of entities for existing food hub operations in other states. Depending on which type of business entity is right for Alabama will be a key decision for food hub investors and operators. Visit the Farm Management page on the Alabama Cooperative Extension Systems website for more information and agribusiness articles. It is recommended that outside professional legal and tax counsel should be considered to assist in this decision making process. Today's information along with Matt's and Consulting's report entitled Financial Model and Scenario Analysis for a Regional Food Hub Network in Alabama can help you understand the business structuring of food hubs. We hope that you found this video helpful. Please follow the link in the video description below to complete the evaluation. For additional information on Extension Food Hub Training, please visit the Alabama Cooperative Extension Systems website at www.aces.edu.