You have certainly heard of the rural holding company, after all several rural producers you know are adhering to this trend. But is it a good idea to set up such a holding company?
The risks involved in the rural holding company are very low and even nil. And the benefits involve tax savings, asset protection, and security for succession.
To clarify the main doubts about the rural holding company, we have prepared a series of articles that may be of great value. To begin, let us clarify what a rural holding company is, who can set it up, why opt for the holding company, and how to do it.
What a rural holding company is
The rural holding company is a company created to manage the family’s assets and their agricultural business. It is a legal means of seeking benefits that favor the future and the present of the producer’s business, such as tax reduction.
With the establishment of the holding company, the rural producer becomes a business owner, going from an individual to a legal entity (PJ). And it is also possible, simultaneously, to work on succession planning within this company, seeking a greater guarantee to perpetuate one’s assets, with more security for succession.
The management and administration of properties, machinery, vehicles, inputs, assets, and any equity interests in other companies come to be controlled by the rural holding company and no longer by a single individual.
Who can set up a rural holding company
Any rural producer can set up a rural holding company and include in its corporate structure family members – heirs – and other people important to the longevity of the business.
The establishment of the company must be done by means of articles of association, respecting all the rules of Law and the legislation in force. For this reason, it is important to rely on a multidisciplinary legal team.
In this process of organizing the business, it is possible to separate the assets of the individuals from the assets of the company and to stipulate asset protection clauses.
It is also possible to allocate shares of the rural holding company to heirs by means of a gift, which must observe all legal obligations, including a declaration to the competent bodies and the corresponding payment of tax.
Why opt for a rural holding company
One of the greatest benefits of the rural holding company is tax savings, both on taxes directly related to the business, which have different rates for individuals and legal entities, and on taxes relating to gift and inheritance.
Also noteworthy is the saving of time and indirect costs – such as attorneys’ fees and court costs – in the event of the death of the owner of the rural property. To give an idea, a probate proceeding may take more than five years to conclude, whereas with the rural holding company this time can be much shorter.
Another important aspect is the distribution of profits. In the case of the rural holding company, the entire distribution of profits earned by the quotaholder partners is exempt from any taxation.
Beyond the financial field, we can also point out the immeasurable emotional and psychological gain in working on succession planning together with the establishment of the rural holding company. The conditions of succession are presented clearly to the family and their consent is given prior to a possible death.
The entire process is organized and systematized at a moment when there are no strong emotional factors involved.
Finally, this business model brings more guarantees and solidity than an individual, since the asset protection clauses are clear and expressly accepted by all who are part of the company. The rural holding company functions as a legal entity, facilitating the process of acquiring agricultural inputs and machinery, among other benefits.
How to create a holding company in agribusiness
First of all, it is necessary to carry out an analysis of the existing assets and a financial and tax planning.
Other important points are: defining the amount of the corporate capital that will be part of the company – real properties, machines, vehicles, cash amounts, securities, equity interests in companies, etc – and the type of company it will be.
In other words, it is necessary to have in mind whether there will be an equal division among the heirs, with management by only one of them, whether a management group will be created, whether an administrative board will be created, or even whether the business will be run by an external professional.
The rural holding company can be an excellent strategy for your business, provided that all the procedures are meticulously followed by a specialized legal team.
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Benefits of the rural holding company
- Tax savings for the business.
- Tax savings in the case of succession.
- Prior drafting of asset protection clauses in the case of gift/inheritance.
- Protection of assets against third parties and safeguard against the failure of relationships (marriage, dating, etc.).
- Financial savings on procedural costs and attorneys’ fees in the case of gift/inheritance or litigation.
- Professionalization of the partners’ performance.
By Glauber Ortolan – previously published on the attorney’s profile
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