Why rearrange into a limited company? : a case study on farms in the Uppsala region

Abstract: The most common legal business form among farmers is the sole proprietorship. However, during the last decades the number of farms managed as limited companies has increased in Sweden whilst the total number of farms has decreased. The differences between owning a limited company and having a sole proprietorship are substantial. The requirements of formality are more extensive, there is differences tax wise and in how business ownership and private equity can be structured and organized, as well as the personal liability for payments and financial risk. The aim of this study is to better understand the reasoning behind why some farmers choose to rearrange into a limited company. To fulfill the aim, interviews were conducted with six farmers within the county of Uppsala who run their businesses as limited companies. The interviews were of semi-structured character and set on farm or by telephone. They were then analyzed based on the conceptual framework; Cost- and Benefit, Personal financial risk and Organization and business structure. The results showed that the conceptual framework captured the reality quite well. Two informants mentioned taxes and the net profit as the main reason for them to rearrange into a limited company. Two, more recently established rearrangements, specified owner structure and organization as their main motive to rearrange into a limited company. One mentioned both taxes and profit and owner structure as the main motive for rearranging. One answered that the only reason for rearranging into a limited company was the decrease of personal financial risk and limited personal liability for payments. Those who mentioned taxes as their main motive for rearranging all had their limited companies registered at least 15 years ago whilst those who mentioned ownership structure was more recently registered. This could be a sign of structural changes within the Swedish agricultural sector where the farms grow bigger, involving more people and the business structure and organizations changes with it The conclusion however was that the motives for rearranging into a limited company are likely to vary from case to case.