McAfee & Taft AgLINC - Fall 2013: Syndication: A viable option for ownership of breeding stock

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The syndication of stallions rose in popularity several years ago as a result of available tax benefits and the practical benefit of common ownership of a valuable animal used for breeding. While most of the tax benefits from years past are gone, syndication is still a common way to hold and manage today’s elite stallions. In Oklahoma, the syndication of quarter horse racing stallions is most common, but quarter horses used for other disciplines, thoroughbreds, and high-powered bulls and other blood stock are syndicated around the country.

Generally, the goal of a syndicate is to spread the risks and benefits of ownership among several individuals. An owner of a syndicate share will own an undivided interest in the animal along with the other syndicate members. Title to the animal and all associated rights, unless expressly reserved by the prior owner, are transferred to the syndicate owners. Ownership of a syndicate share entitles the owner to a certain number of annual breedings without having to pay the stud fee. The total annual breedings to the animal are generally limited to those allocated to syndicate owners and certain other designated persons, such as the stud farm where the animal is standing. The fact that a popular stallion will have a specified and limited number of breedings per year, and no more, often increases the value of the syndicate owner’s foals from the stallion, which increases the value of the animal and the owner’s share.

The details of syndicate management, stallion management, and owner rights and responsibilities are detailed in the syndicate agreement. Today, most syndicate agreements come in the form of a limited liability company operating agreement. The syndication agreement designates who will manage the business of the syndicate, the location of the stallion, the breeding season, the order of ownership breedings, rebreeding rights, allocation of expenses, and other important issues associated with the ownership of a breeding animal. With today’s breeding technology, new syndications need to address the retention and future use of stored semen, retention of genetic material, and the possible cloning of the animal. While syndications used to terminate upon the death of the animal, today’s cutting-edge breeding techniques and the availability of clones allow syndications to survive well past the life of the stallion.

While syndications are commonly associated with million-dollar stallions (recent syndications of quarter horse stallions create 40 syndicate shares that sell for more than $200,000 per share), the concept is viable for all types of breeding stock arrangements. For example, instead of five cattle ranchers each buying $20,000 bulls, they might increase their genetics by purchasing a $100,000 bull and jointly owning it through a syndicate that fairly allocates the bull’s semen among the ranches. The joint ownership of breeding stock through syndications could be the way for small operations to viably compete in the high-stakes agriculture and equine markets.


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Topics:  Farm Animals, Farms, Syndications

Published In: Agriculture Updates, Business Organization Updates, General Business Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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