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Home > Animals & Livestock > Livestock Resources > Livestock Business Structures

Livestock Business Structures


Livestock farming today is taking on various forms of business structures to help manage the day-to-day activities of the business. Livestock farms are becoming larger and more complex, as multiple family owners, active and passive investors, and joint ventures spring up among the neighboring crop and livestock operations. This document addresses the many questions that Minnesota livestock farmers have regarding business structures and farming operations.

Challenges of Building a Livestock Business

Today's livestock entrepreneurs are experiencing situations that livestock farmers have not had to face in the past. These include the increased use of hired labor, environmental regulations, and the need for large sums of capital in growing livestock operations. To find capital and build equity, business partners are often needed to secure appropriate financing. In addition, the Minnesota Corporate Farm Law is often misunderstood or misinterpreted. In this regard, this paper should help guide you in deciding if your current business organization is meeting your needs, or if you need to choose a different form of business structure.

Definitions of Legal Structures in Minnesota

**This is only a very basic, brief summary of the law. Before you choose any business form, it is very important that you contact an attorney as to the legality and/or an accountant as to the tax and economic consequences.**

Sole Proprietorship - Owned by one person who has full control and responsibility for the business.

General Partnership - A partnership that has two or more owners who carry on a business and who share in the profits or losses. Each partner is held liable for the full debts of the partnership if the partnership is not able to pay its debts. The partners can all participate in the management and each partner can bind the partnership to contractual obligations.

Limited Partnerships - The limited partnership has at least one general partner and at least one limited partner. The general partner are liable for the full debts of the partnership. The limited partners are not liable for the debts of the partnership unless they have personally guaranteed the partnership debt or are liable as a result of individual action other than being a limited partner. Limited partners are not allowed to participate in the management of the partnership business.

Limited Liability Partnership - This entity has an unlimited number of partners, but only natural persons, partnerships and other entities certified under the corporate farm law can participate. Partners may elect to have some of the partners have less than joint and several liability.

Family Farm Corporations - These entities have an unlimited number of shareholders, but the majority of the interest and the majority of the shareholders must be related within the 3rd degree of kindred. Eligible shareholders include partnerships, natural persons, limited partnerships, and limited liability partnerships.

Authorized Farm Corporations - Eligible shareholders must be natural persons. Shareholders are limited to five, but no relation is required. Limited liability is offered in this structure. As a general rule, a corporation is a tax paying entity, but it depends on whether the corporation is organized as Subchapter "C" or Subchapter "S."

Family Farm Limited Liability Company - These entities can have an unlimited amount of members as long as a majority of members are related and at least one of the related members is actively operating the farm. None of the members can be corporations or limited liability companies.

Authorized Farm Limited Liability Company - This entity can have up to five members, and all members must be natural persons. You cannot have more than one class of membership interest, and members holding 51 percent of both the financial and governance rights must reside on the farm or actively engage in farming.

Family Farm Trust - A trust in which 1) a majority of the current beneficiaries are persons or spouses of persons who are related to each other within the third degree of kindred, all of the beneficiaries are natural persons, nonprofit corporations, or trusts, and one of the family member beneficiaries is residing or actively operating the farm; or 2) a charitable remainder trust or charitable lead trust.

Figure 1. illustrates various business structures and includes some options not currently legal in Minnesota for dairy operations. It is important to consult an attorney for legal advice when selecting and implementing a business. Information on how the Minnesota Corporate Farm Law is regulated and questions relating to the law can be addressed to the Minnesota Department of Agriculture, 625 Robert Street North, St. Paul, MN 55155-2538. Attention: Corporate Farm Law Administrator.

Figure 1:

Entity type: General Partnerships
Eligible shareholders: Natural persons, partnerships, other entities certified under the corporate farm law.
Ineligible shareholders: Entities that are not certifiable under the corporate farm law, i.e. partnership of non-qualifying corporations.
Number of shareholders: Unlimited.
Limited liability: No. Joint and several liability exits for each partner.
Livestock and row crop eligible: Yes.

Entity type: Family Farm Limited Partnerships
Eligible shareholders:
Natural persons, partnerships, limited partnerships, limited liability partnerships.
Ineligible shareholders:
Corporations, limited liability companies.
Number of shareholders:
Unlimited, but the majority of the shareholders must be related within the 3rd degree of kindred.
Limited liability:
Yes, for limited partners. However, there must be at least one general partner that retains liability.
Livestock and row crop eligible: Yes.

Entity type: Authorized Farm Limited Partnerships
Eligible shareholders: Natural persons.
Ineligible shareholders: All non-natural persons such as partnerships and corporations.
Number of shareholders: Up to 5. No relation required.
Limited liability: Yes, for limited partners. However, there must be at least one general partner that retains liability.
Livestock and row crop eligible: Yes.

Entity type: Family Farm Corporations
Eligible shareholders: Natural persons, partnerships, limited partnerships, limited liability partnerships.
Ineligible shareholders: Corporations, limited liability companies.
Number of shareholders: Unlimited, but the majority of the shareholders must be related within the 3rd degree of kindred.
Limited liability: Yes.
Livestock and row crop eligible: Yes.

Entity type: Authorized Farm Corporations
Eligible shareholders: Natural persons.
Ineligible shareholders: All non-natural persons such as partnerships and corporations.
Number of shareholders: Up to 5. No relation required.
Limited liability: Yes.
Livestock and row crop eligible: Yes.

Entity type: Authorized Livestock Farm Corporation
Eligible shareholders: Natural persons and family farm corporations.
Ineligible shareholders: All non-natural persons other than family farm corporations.
Number of shareholders: Unlimited, but 75% must be farmers, and 51% of the 75% must be livestock farmers.
Limited liability: Yes.
Livestock and row crop eligible: No. Only eligible for corporations engaged in livestock production other than dairy cattle.

Entity type: Limited Liability Partnerships
Eligible shareholders: Natural persons, partnerships, other entities certified under the corporate farm law.
Ineligible shareholders: Entities that are not certifiable under the corporate farm law, i.e. partnership of non-qualifying corporations.
Number of shareholders: Unlimited.
Limited liability: Yes. The partners may elect to have some of the partners have less than joint and several liability.
Livestock and row crop eligible: Yes.

Entity type: Cooperatives
Eligible shareholders: Treated the same as corporations.
Ineligible shareholders:
Number of shareholders:
Limited liability: 
Livestock and row crop eligible:

Entity type: Family Farm Trust
Eligible shareholders: Natural persons/nonprofit corporations
Ineligible shareholders: All non-natural persons
Number of shareholders: Unlimited, but the majority of the shareholders must be related within the 3rd degree of kindred.
Limited liability: Yes.
Livestock and row crop eligible: Yes.

Hybrid Organizations

Businesses can be organized by combining two or more entities or ownership forms.

Example A: Family Farm Corporation

Any combination of the above can be used, with an unlimited amount of shareholders, however a majority of the shareholders must be related within the 3rd degree of kindred and non-natural persons can not be related to individuals. The related individuals must make up the majority of shareholders and must own the majority of the voting stock.

Notice that no corporations or limited liability companies are eligible to be shareholders in family farm corporations.

Example B: Limited Liability Partnership

Any combination above can be used, and there can be an unlimited number of shareholders in a limited liability partnership.

Notice that only corporations that qualify under the corporate farm law can be eligible shareholders.

These are only two general examples of hybrid organizations. There are numerous other ways to create such organizations, each with their own restrictions. It is also important to remember that there are other requirements that need to be satisfied when applying for certification. Because each entity or ownership form has its own restrictions, it is impossible to make broad generalizations about compliance with the corporate farm law. The best thing to do is to contact an attorney or the Minnesota Department of Agriculture, where situations can be dealt with on a case-by-case basis.

Resource

Dairy Opportunities in Minnesota (PDF: 169 KB / 2 pages)