We as horse people have a love for the animal and the lifestyle that goes with that animal. Sometimes we spend large sums of money on acreage, barn and a house. We hold down a day job while we are building our horse business.

A person who creates a business wants to preserve his assets for several reasons. In the horse business, we have our home and farm that we want to use for our retirement, whether we sell the property, lease the barn out or pass it down to our children and grandchildren.

The nature of our business involving horses produces great liability from accidents, IRS, business failures, death of the principal stallion, etc. From the beginning of a horse business, we should strive to protect assets from being lost due to circumstances beyond our control.

I have written about the different business structures before but let us review them briefly.

1. Sole Proprietorship; You own it, expenses and depreciation are deductible, the profit or losses pass through to your 1040 and the liability is all yours. You do not have protection if you are sued or have a lien processed against you. Everything you own is subject to liens or legal judgments.

2. Partnerships; Same as above except you are now responsible for the partner’s actions as they are for yours. Everything that the partners own is at risk if a legal action is processed against the partnership.

3. S Corporations; You still pass through profits and losses to your 1040. You depreciate assets, deduct expenses, amortize capital expenses, but you limit your liability to legal actions to the assets of the corporation.

4. LLC’s. Limited Liability Corporations are supposed to operate like an S Corporation on the state level. They are not available in all states, case law is minimal, and they are usually less expensive to set up than S Corporations.

As our business progresses, we acquire assets needed to improve or run our business, such as land, buildings, trucks, trailers, livestock. houses for employees and ourselves. The problem now becomes how to shelter those assets from being subject to liability from our business.

One of the ways of doing this is for us to have two separate business entities. One owns the property and the other rents the facility and conducts the business. You can own the land, buildings and house as a landlord and rent the barns and land to your horse business, which is a separate business.

As a landlord, you can collect rent and still depreciate the buildings. You can expense the upkeep to the buildings. Your house is your home and should be treated as such. If you have employee housing on the grounds, you should collect rent from the tenants or the business if housing is part of the employee’s benefits.

From my experience, it is better if the business is an S Corporation or LLC. You have effectively limited your liability to the assets of the business and have protected in part your other assets. You can have both entities be a corporation but when you sell the farm you will pay taxes on your home because it is part of a business and not a private residence.

Most horse people want to finance the purchase of horses and other equipment by getting a loan on the horses and other assets the business has. There are very few investors available that will advance funds without some sort of collateral. You should look into all the ways that are available to you and make your decision on whether you may lose all of your assets if the business does not succeed. Shelter as many of your assets as you can at all time Because of the fluctuations in value of animals plus many bankers do not understand the horse industry, banks may want you to guarantee loans for your business by you signing as a personal guarantor. When this happens you need to know that you have just signed over your other assets, home, land and buildings to secure your loan for your business. If your business is profitable and has it’s own assets that are more than sufficient to cover the loan; I suggest you decline and look for a bank that is more sympatric to your needs.

There are many types of insurance available to you. Your homeowners policy will not cover commercial horse activities. It is important that you have commercial equine liability insurance to cover the business and it’s employees. You should post the limited equine liability signs but in most cases they do not cover negligence or if you furnish the horse and/or equipment.

The business should have mortality insurance on the principals so the business can continue in case of accident or death. The business can be liquidated in an orderly manner or passed on to another principal without incurring a burden on that principal.

If you transport client’s horses you should have insurance even if the owner has insured his animals. His insurance may assume that you are at fault and sue you even if the owner does not.

At the end of your business life, you want to be able to sit back, relax and watch the grandchildren as they carry on the grandparent’s traditions.