Custom Farming Operations Should Consider Limiting Liability with Business Entity Selection

With the fall comes harvest time, which means we’ll be seeing more combines in the fields.  One of my favorite sights!

Photo via National Sorghum Producers

Custom harvesting can be a great business venture for folks involved in agriculture as it can allow farmers to earn supplemental income using knowledge and equipment they already have from their own operations.  Farmers engaged in custom harvesting for others, however, should consider creating a separate business entity that will not only limit liability for their custom harvesting operation, but will also ensure that their own farm assets are protected in the event that they are sued for something related to the custom operation.

For example, let’s assume a farmer owns land, several tractors, a combine, various implements, and livestock.  Assume that he also does custom harvesting on the side for various other landowners in the county.  If an accident were to occur in a client’s field or on the way to the neighbor’s field while the farmer was engaged in custom harvesting and the farmer was sued, all of his assets–whether related to or used in the custom harvesting operation or not–could be subject to a judgment.  This would mean the farmer’s land, equipment, and livestock could all be at risk if a judgment were entered against the farmer.  If, however, the farmer had set up his custom harvesting operation as a separate legal entity, then only the assets of that separate entity would be subject to a judgment.

There are numerous entity types that folks can select from, each offering benefits and downsides.  For example, a limited liability company (“LLC”) could be a good choice for a custom harvesting operation as it would offer limited liability for all members and would be a separate legal entity from the farm.  The downside, however, is that creating an LLC requires drafting Articles of Incorporation to be filed with the Secretary of State, payment of a filing fee, and following various formalities, including drafting an operating agreement and keeping LLC income and assets separate from farm income and assets.  Other business entities that should be considered include limited liability partnerships and corporations.

Although the creation of a separate custom harvesting entity might require some additional costs and leg work, the liability protection for your farm may be well worth the effort and expense.

Happy harvesting!

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