Once I started law school, there were a few changes I urged my parents to make to our farming operation. They needed to have written lease agreements, which fully spelled out our rights and responsibilities, with any landowners from whom they were renting farmland. They should get waivers of liability or license agreements with anyone they allowed onto our property, such as hunters or snowmobilers. Most importantly, they needed to adopt a more sophisticated business entity structure, such as a corporation or a limited liability company. As a practicing lawyer, I understand even better how important these things are to any family farm.
Unfortunately for farmers in nine states, the ability to take advantage of a business entity status is extremely limited.
This includes North Dakota. In 1932, in the midst of the Great Depression, the state adopted the Corporate or Limited Liability Company in Farming law. Essentially, the law prohibits corporations and limited liability companies from owning or leasing farmland, or engaging in a farming operation, unless the entity meets the requirements set out in the act. Most relevantly, corporations must have less than 15 shareholders, and all the shareholders must be related. For corporations, the officers and directors must be shareholders who are actively engaged in operating the farm, and at least one of the entity’s shareholders must be an individual residing on or operating the farm. For limited liability companies, the managers must be members who are actively engaged in operating the farm, and at least one of the members must be an individual residing on or operating the farm.
Concerned with the dwindling number of dairy and swine producers in the state, the North Dakota government passed a law that would expand corporate ownership. The legislation would have allowed a non-family corporation to operate a farm, so long as it was under 640 acres. But a state ballot measure put the issue to voters and stopped the expansion law from going into effect immediately. In June, voters in the state rejected the repeal of the anti-corporate farming law.
Of course, the typical fear-mongering rhetoric was at the helm of the ballot measure campaign. Representatives of the North Dakota Farmers Union claimed that allowing corporate farms in the state would be an open invitation to investors with no ties to the farm, ranch, or community. It would allow these farms to be shared by shareholders who are not related (gasp!), and even allow shareholders that are not directly engaged in the farm or ranch operation. Opponents of the repeal claimed they did not want a big, faceless corporation producing their food, instead preferring Farmer Pete doing it.
The groups opposing repeal of the anti-corporate laws draw pictures of nostalgic days past to support the outdated laws. They envision agriculture as it was before modern equipment, machinery, and production methods. To them, the farmer should still be wearing overalls, the farmer’s wife should still be baking fresh bread daily, and the rooster wakes everyone up at dawn.
But farming today is a sophisticated business, with complicated contracts, transactions, and decisions. Even within families, various business arrangements are sometimes necessary to keep the farm afloat. While agriculture as a family business is a time honored tradition in this country, there is nothing inherently necessary about the operators all being related. There is no reason unrelated individuals should be prohibited from farming together, or be forced to forego the benefits of a corporate entity. The law is unnecessary, outdated, and needs to go.
If anyone is wary of repealing the law, consider that family farms in the remaining 41 states are perfectly capable of staying in business and competing with larger, non-family corporate farms. In fact, according to the USDA, 96 percent of farms in the United States are family farms. Under North Dakota laws, which supposedly seek to protect family farmers, second cousins would be unable to farm together because the law doesn’t consider them closely related enough. In reality, the law just imposes an arbitrary definition of family and unnecessarily limits business and growth potential.
Perhaps seeing the writing on the wall, North Dakota Farm Bureau, along with a Wisconsin dairy farmer and Wisconsin dairy company, filed suit before the ballot proposal was decided. Additional parties have joined the lawsuit since then. The aim of the lawsuit is to have the anti-corporate farming law declared unconstitutional. North Dakota Farm Bureau is arguing that the law hurts agriculture by restricting business tools available to farmers and lowers the value of farming operations. It also discriminates against farmers and business in other states, which interferes with interstate commerce. The attorney general of the state is defending the law.
Farmers should have all the legal tools available to them to stay competitive, grow, and progress in the modern world. States should not be limiting farms with a nostalgic ideal that may not be the best option for today.
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