Horse Business Spoken Here

It may seem a simple task to start a horse business – why not just hang out your shingle or hit the trail, taking your services on the road? But business ownership requires you to choose a legal structure, a choice that is better made consciously and with understanding. Your choice will be based on how each structure will affect tax implications, personal liability and your ability to manage your horse business. You will choose between five basic types of business structures: 1) sole proprietorship, 2) partnership, 3) C corporation, 4) S corporation, and 5) limited liability company. A good attorney and tax expert can provide you with what may be comparable to private riding lessons in this less-familiar arena.

Sole proprietorship – I am my own boss

If you have simply hung a shingle out and not investigated all your options with each structure, you have unknowingly selected a sole proprietorship form of business. This is not necessarily a bad thing, rather a decision that should be made from an informed point of view. Sole proprietorship is the most common small business structure. A “sole p” is owned and operated by one person. All this business owner is required to do is to obtain any necessary licenses and start working. Necessary licenses may include any trainer or instructor licensing required by your state, as well as registering your trade name with your Department of State. This business form is the least formal and has fewer legal restrictions associated with it. It is the least expensive to establish, and enjoys pass through income/loss tax treatment. Pass through, (often also referred to as flow-through) income/loss treatment means that income, losses, deductions and tax credits of your horse business are “passed through” to you as the owner and reported on your individual tax returns. In addition, business management, control and decision-making are all in your hands, as the sole owner. 

The disadvantages of operating a sole p revolve around liability. As the horse business owner, you will be personally liable for the actions of your employees or other agents acting in your employed behalf. You will also be personally responsible for all business debts. This can be greater than the amount that you have invested in your horse business, and extends to all your assets including your house and vehicle. Other problems of liability related to personal injury and physical loss can be minimized through arranging for proper insurance coverage. Raising additional capital to invest in the business can be difficult. Usually the owner must find their own loan source, and is again personally liable for this debt. A final note about sole proprietorship to consider is this: if you are disabled and prevented from working, or in the event of your death, your horse business may also be crippled or face demise.

Partnership – Two  (or more) heads may be better than one

A partnership can be selected as a form of business if two or more people are acting as co-owners of the horse business. This business structure is less expensive and less formal to set up than a corporation. There is nothing that says that a written partnership agreement is required, but good common sense will steer you towards preparing such a document. Your horse business partnership agreement should outline what each partner will contribute to the business. Be sure to include financial, physical property, management, profit and loss division, and the roles that each partner has in the horse business. The topics of dissolving the partnership and partnership buy-out should also be considered and put into writing at this time. Partnership insurance can prevent problems of dissolution and might be a good investment. Forming a partnership also requires any licensing as with the sole proprietorship, and trade name registration. And where will more capital come from if needed? With partnerships, the partners can each contribute more, or more partners can be added.