How do I Create a Farm LLC?

By Larissa Bodniowycz, J.D.

How do I Create a Farm LLC?

By Larissa Bodniowycz, J.D.

Traditionally, farmers used sole proprietorships or partnerships as the structure for their farming business operations. However, farmers have increasingly been utilizing limited liability companies (LLCs) instead—and for good reason.

A farm LLC is not a type of legal entity but is the same as any other LLC—the business is just farming. This is a flexible business entity that limits its owners' personal liability for business financial liabilities. Because these businesses involve heavy equipment, animals and livestock, and strenuous activity for employees and independent contractors, they are inherently risky. This risk increases the likelihood of litigation and that someone may try to collect money from the farmer's personal assets. This structure is a wise choice for many farming businesses because it helps shield those personal assets.

Man sitting in a field of lettuce

Another advantage of this structure is that it allows farming businesses to be taxed on a pass-through basis. Under this tax structure, owners, called members, pay all taxes on their share of the business's profits and losses, which avoids double taxation.

Follow these steps to create an LLC for your farming business.

1. Name your farm.

The first step to forming an LLC for your farming business is to choose a name. State law governs these types of businesses, and many states limit what your name can include. For example, the name typically cannot include words that imply an affiliation with a governmental agency.

Once you have decided on a name, check to make sure no one else is using the name already. You should check records from your state's business authority, state and federal trademark offices, and local fictitious name registrations. Make sure that you also search online to avoid any duplicates.

2. Pick your members.

Next, decide on the members of the LLC. If you don't want to be a single-member LLC with only you as a member, you can bring on additional members, such as family members who help with the operations or your key employees who have a big impact and role on the farm.

You can determine each member's involvement in the management. You should set out these and other important details, such as the percentage of ownership, financial contributions, and duties of each member, in your LLC's operating agreement.

3. Choose a registered agent.

Once you pick your members, decide who will serve as the registered agent for your LLC. A registered agent is the person who receives service of process, notices, and other important correspondence on behalf of your farming business. This person should be someone who is active in dealing with legal issues for your farm. The registered agent typically also must have a physical address, not a P. O. Box, in your LLC's state of business.

4. File articles of organization.

To formally create your LLC, you must file articles of organization with the agency that regulates businesses in the state where your farm will operate. The articles of organization typically include basic information about the LLC, such as its name, mailing address, whether the members manage it, and the registered agent's name and contact information.

In most cases, your state business authority's website will have the required forms and documents and will allow you to file the required paperwork electronically. The cost of filing this paperwork varies by state.

5. Create an operating agreement.

Many, but not all, states require operating agreements. Every LLC should have one, even if your state does not require it. An operating agreement outlines the operations, including the rights and responsibilities of the different members, the distribution of profits, and the allocation of management duties.

An operating agreement is particularly important if there are multiple members. To avoid conflict and confusion, the operating agreement should define each member's financial contributions and share of profits and losses. In many cases, farming businesses choose to have members' profit and loss share proportionate to the value of the assets and funds they contribute.

6. Comply with annual requirements.

Once you finish all the steps above, you are not totally relieved of your business's filing responsibilities. Many states require you to renew your LLC every year or two or face late fees. Some even require you to file an annual report. You also must update your information if anything changes from the time you first filed. Exact requirements vary by state.

After deciding to form an LLC for your farm, you'll need to ensure you're adhering to all of your state's laws to avoid any legal repercussions. While an operating agreement isn't required, it's certainly a useful document to have so everything can be determined by your and your members' interests, instead of falling to whatever requirements your state may have set forth in the case of no agreement. Make sure you keep up with all the legal necessities so your farm's business can remain valid.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.