If horses are your passion, you probably have dedicated your life to them. That’s only reasonable since a horse’s love is unconditional, like any member of the family. Because of this, it may never have occurred to you that incorporating the horse part of your life into a business could make sense.
For serious horse enthusiasts, a business arrangement is often appropriate. That can even include a formal limited liability corporation, or LLC, if your horse activities include a human herd. With various tax and liability benefits, it may be an arrangement that works for you.
What is an LLC?
A limited liability corporation is primarily what its name implies. It is a legal entity governed by two or more unrelated people for the purpose of conducting a business. It owns assets and has its own liabilities.
The operating agreement created at the founding typically covers all aspects of the LLC. This includes how profit and losses are divided up, how decisions are made, and how individual investors can enter or leave the company.
When is it appropriate for horses?
Since horses are so expensive to maintain, many people form partnerships or informal agreements on the purchase, care, and other costs of the horse. If you have such an arrangement, an LLC might very well be a better option for you. The main difference is how all the details are spelled out and that the ownership is clearly defined.
An LLC will protect you from liability if someone is injured, unlike a partnership. It also can make it easier to deduct your expenses as a business, since it is set up this way from the start.
If you are generating income from your horse in any form, you already have a business. This might include riding lessons, show purses, or breeding. An LLC can help to define and protect that business for everyone’s benefit.
One important reason why an LLC may not be appropriate is that it has to show some profit every seven years. If you are breeding horses and selling the foals, this is probably not going to be an issue for you. But if it is purely a hobby you may have trouble meeting the legal requirements of being a ‘business.”
You are also required to maintain the books on your horse and related activities according to the standards of a corporation under California law. This may be a lot more formal than you are used to, and it may be neglected. That can cause legal troubles as well.
If you have a relationship involving many different people and one or more horses, you should consider the benefits of forming an LLC.
Talk to an experienced equine law attorney if you think that this might be right for you. Every horse deserves a stable situation, and a formal LLC can help provide that – even if it seems a little cold and business like for a member of your family.