A34-Lancaster Farming, Saturday, August 4,2001 Agriculture Services Coordinator I - ■ I ( tmtnu m liu/ns(r\ ■***• E-mail blandis @lcci com STRUCTURING YOUR FAMILY FARM AS A LIMITED LIABILITY COMPANY When analyzing the future business and risk protection plan for your family farm, an impor tant step is to review today’s new forms of business organizations. Pennsylvania has recently ap proved a new way to structure a business called a limited liability company (LLC). An LLC com bines many of the best features of all types of business organiza tions while providing some pro tection from lawsuits and making it easier to form and operate than a corporation. The source of the following in formation is the Agricultural Law Research and Education Center at Penn State’s Dickinson School of Law. A farm organized as an LLC is considered a separate legal entity, similar to a corporation, as it is li able for its own debt and can act as a legal person. One or more farmers may operate their business together under an LLC with the same protection from personal liability as shareholders in a cor poration, yet it retains the advantages of a partnership. There is no double taxation; it is rather simple and in expensive to create and use. The farmer and members of the farm LLC are only lia ble for the amount of investment, not per sonal liability To form an LLC in Pennsylvania, two doc uments are needed: a certificate of organiza tion and an operating agreement. Your attor ney will help ensure that both of these doc uments are properly drafted. To help make certain that the public is aware of your busi ness form, it is re quired that the term “company,” “limited,” “limited liability com pany,” or “LLC” is in- See Lancaster Farming Cow Cam Visit our Website at www. lancasterfarming.com Lancaster Farming Check out our Website www.lancasteilarmlna.com eluded on all documents listing your company name. An LLC can be made up of one or more members. A single individual can form an LLC, which is unique compared to some other states, which require more than one member. There are many advantages to forming yout farm as a LLC. One of the biggest benefits is protec tion against lawsuits, which are a constant risk for businesses. If an LLC is sued, only the assets of the LLC are subject to legal lia bility, the personal assets of the members who own the LLC can not be reached. The simplicity and flexibility of operating an LLC farm is anoth er key advantage. An LLC can use either a cash or accrual meth od of accounting. An LLC allows for the plan ning of different family situations and the flexibility for estate plan ning. 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The LLC op erating agreement can specify a process for resolving family dis putes, should one occur, which can help avoid a major disrup tion in the operation of the farm. The protection an LLC offers during an economic downturn is greater than an operation that is organized as a sole proprietorship or partnership. In the formation of an LLC, members may contribute farm assets such as animals, buildings, equipment, land, and their serv ices in exchange for an ownership interest. A farmer may choose to exclude his farmhouse, farmland, and other nonfarm real estate. This would protect the farmer in a worse-case scenario where the LLC may have borrowed funds, because only the assets placed into an LLC would be taken to pay off cred- itors. Some limitations that a farm LLC may encounter include personal liability for any LLC debt, which was personally guaranteed and for any personal acts or omissions. For example, a farmer who is an LLC member causes an accident with an LLC tractor on an LLC business may be per- sonally sued along with the LLC for any damages caused by the accident. An- other possible limitation with a farm LLC is that banks may not always loan an LLC money without personal guarantees of its members. If an LLC loan is perspnally guaran teed and the LLC does not pay back the loan, the guarantor is responsible for the loan. The limited liability company entity may provide advantages for family farms by allowing it to operate its business with the same protection from personal li ability as shareholders in a cor poration, yet retain many of the advantages of a partnership. Op erating any business presents many risks, which an LLC may help protect. It is highly recom mended you seek the counsel of an agricultural law attorney along with your accountant and properly research all business en tities before making a decision for your farm. 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SEE OUR DISPLAY AT EMPIRE DAYS Lot #224 - Aug. 7, 8 & 9 AG PROGRESS DAYS - Aug. 14, 15 & 16 West 2nd Street The information in this article was researched by Jeff Feirick, graduate research assistant with the Agricultural Law Research and Education Center of Penn State’s Dickinson School of Law and College of Agricultural Sci ences. The center provides many agricultural publications, educa tional programs, and cutting edge legal research. For a com plete copy of the article on LLCs or for more information on or ganizing your farm as an LLC or other agricultural taw issues, con tact the center at (717) 241-3517, at aglaw@psu.edu, or visit their Website at www.dsl.psu.edu/ aglaw/aglaw.html. For informa tion on The Lancaster Chamber, contact Brent Landis at blan dis@lcci.com or (717) 397-3531, ext. 134. FARMWAY BEDDING CHOPPER . rows of knives, blades can be rotated isily without removing rotor. io ejection doors, javy-duty reinforced polyethylene ipper. Ijust to control size.' ipendable Honda power or PTO. leumatic tires with parking brake HP priced at $2,232.00 or $105.00 mo NNETT, INC. 3C, Wysox, PA 18854 100-724-4866
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