Entity and Organizational Charts

Your farming operation, regardless of size, should be displayed using both an entity and organizational chart showing the hierarchical structure. The charts show the ownership structure and the relationships between employees in the farming operation. Entity and organizational charts are important for understanding the structure and dynamics of your business.

Entity and Organizational Charts: What’s the Difference?

Entity and organizational charts focus on different aspects of the business.

An Entity Chart is a visual representation of the relationships between legal entities in a business. It shows the relationships such as ownership, management, and governance. It can be created using symbols and lines representing the hierarchical structure and relationships or can be displayed using a chart with rows and columns.

An Organizational Chart is a visual representation of the structure of a business showing the relationships of the positions within it. It shows the relationships between managers and employees by department. It is created using symbols and lines to represent the hierarchical structure and relationships.

Why are Entity and Organizational Charts Important?

Entity charts are important for several reasons. Overall, they are important because they show the relationships between different aspects of the business. Some additional benefits include:

• Clearly showing the entities and their relationship to one another.
  • Liability isolation so protections can be put in place to protect personal and business assets.
  • Outlines ownership and operational responsibilities assisting in transition/succession planning.
  • Shows which entity owns what assets and how income and debt is distributed.

Organizational charts are important for many reasons, the most important being that they help things run smoothly and efficiently. Some other benefits include:

• Assisting in the onboarding process for new employees by clearly indicating who they should approach with inquiries.
  • Enhancing communication and minimizing potential conflicts arising from power struggles.
  • Recognizing suitable successors within the farm and supporting their career development.
  • Standardizing job titles and levels within the organization.
  • Clarifying roles of family members to help non-family team members understand their positions.

What should be included in Entity and Organizational Charts?

Entity charts, which show the legal structures of the business, can include the following:

• The name of the entity. Be sure to include all formed entities, including the primary farming entity, land ownership entities, equipment ownership, or leasing entities.
  • The legal organization of the entity, for example, Sole Proprietor, LLC, Partnership, Corporation, etc).
  • The owners of the entities
  • Ownership percentages. Please note that ownership percentages should add up to 100% for each entity.

Organizational charts, which show the hierarchy and responsibilities of individuals in the farming operation, can include the following:

• Owners and leadership
  • Farm managers
  • Crop or livestock managers
  • Supervisors
  • Administrative staff
  • Sales and marketing
  • Human resources
  • Equipment and maintenance

Every farming operation is unique and these may or may not apply to your situation.

Who Should Assist in Developing Charts?

When forming entity and organizational charts for your farming operation, you should involve the following people:

• Owners and management. Make sure they are aware and able to provide input to the structure.
  • Employees. Explain the purpose and benefits of the charts and show them where they are situated within the structure. This is also a time to reiterate hierarchy and who they report to.
  • Accountant and other professionals. If you are setting up entities, you’ll need an attorney. An accountant can assist with the tax implications of your operation’s structure.
  • Family and consultants. In the case of a farm business transition, you’ll want to include the family and consultants as you create entity charts and organizational charts depicting the business succession plan.

Who Should Have Access to the Charts?

Entity and organizational charts should be carefully managed. You may not want sensitive information exposed unnecessarily. Here are some general guidelines; however, your situation may be different.

For entity charts:
• The farm owner
• Key leadership and/or management
• Attorney
• Estate planner
• Farm Transition Planning consultant

The following individuals generally do not have full access to entity charts:
• General employees
• External partners

For organizational charts:
• The farm owner
• Key leadership and/or management
• Department heads
• Human resources
• All employees

The following individuals generally do not have full access to organizational charts:
• External stakeholders

How Often Should the Charts be Updated?

How often charts are updated depends on the complexities and dynamics of your farming operation.

Entity charts should be updated annually and when major changes occur. This can be accomplished as part of the annual strategic planning process. Some major changes include the formation of new entities, changes in ownership, acquisitions and new contracts.

Organizational charts should be updated more frequently, quarterly or biannually for large farms and less often for smaller, less complex farming operations. Updates should occur when there are significant changes to staffing to reflect new roles, changes to the reporting structure, etc.