Category Archives: Business and Financial

Limiting Liability on the Farm: An Overview of Ohio’s LLC Laws

Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

The Agricultural and Food Law Consortium is holding a webinar regarding Using LLCs in Agriculture: Beyond Liability Protection this Wednesday, August 16th at 12:00 (EST).

The Limited Liability Company (LLC) is a relatively new type of business entity. The first LLC statute passed in Wyoming in 1977. Since then, all fifty states passed legislation permitting LLCs as an operating entity. Many Ohio farmers use the LLC as their preferred operating entity.

In Ohio, an LLC is a legal entity created by Ohio statute. An LLC is considered to be separate and distinct from its owners. An LLC may have a single owner in Ohio, or it may have numerous owners. LLCs combine the best attributes of a corporation and a partnership. Individuals, corporations, other LLCs, trusts, and estates may be members in a single LLC. There is no limit on maximum members.

The Importance of an Operating Agreement

When an agricultural operation chooses to operate as an LLC, that operation must consider drafting an operating agreement. An operating agreement specifies the financial responsibilities of the parties, how profits and losses are shared among members within the LLC, limitations on transfers of membership, and other basic principles of operation.

If an LLC does not choose to draft an operating agreement, Ohio’s default rules apply. Ohio law prescribes default rules of operation for LLCs in R.C. Chapter 1705. However, LLC members often wish to modify state rules to tailor an LLC to their business. Ideally, agricultural operators should draft an operating agreement with the assistance of an attorney.

Single Member LLCs

Every state in the Midwest permits single-member Limited Liability Companies (SMLLCs). A single member LLC is an LLC which has one member or manager; that means that there are no other owners or managers of that LLC. In 2016, Ohio enacted R.C. 1705.031 which states that Ohio LLC laws apply to all LLCs, including those with only one member. Therefore, small agribusinesses that have only one member are not prevented from forming an LLC.

Will a Personal Guaranty on a Loan Affect Limited Liability Protection?

Ohio farmers operating as an LLC enjoy the benefits of limited liability protection. Usually, that means that the debts and obligations of a farm LLC operation are solely those of the LLC. That means that a farmer is not personally liable for any debts or obligations incurred by the LLC.

However, lenders, implement dealers, financial institutions, and others are finding ways around an LLC’s personal liability protection. Those parties are increasingly requiring that the members and managers of LLCs provide personal guarantees. That is, a member or manager of an LLC agrees to be personally liable for a debt or obligation, if an LLC is not able to pay.

A full discussion of personal guarantees and LLCs in an earlier blog post is here.

LLCs are not Invincible

Limited Liability Companies are extremely popular among Ohio farmers. However, LLCs merely limit liability. LLCs don’t create a perfect liability shield, they are subject to a concept known as “veil piercing” where the owners of a company are held personally liable for the actions of the company.

Generally, a person cannot use a corporation to commit fraud on others or to use a corporation as an alter ego for a member’s own personal gain. Plainly speaking, Ohio courts may hold an owner of an LLC liable in certain cases of fraud committed by the LLC or where an LLC is undercapitalized and is not treated as a separate entity from a member (i.e. the LLC is used as an “alter ego”). While this is not a common scenario among farm business LLCs, LLC members should be aware that a business’s status as an LLC will not shield it from liability in all instances.

Carrying Liability Insurance

Many LLC owners consider the protections under Ohio’s LLC laws to be sufficient. Some LLC members are satisfied that their personal assets are sufficiently protected and separated from LLC assets and LLC liabilities. However, every business should have liability insurance. Liability insurance is a relatively inexpensive means of managing liability exposure for injuries and physical damage to a third party. While insurance doesn’t lower liability, it gives the business a way to pay for damages in the event of an incident.

The question of “how much liability insurance should a farm operation have?” is a difficult one. The amount of insurance that a farm should have must be determined on a case-by-case basis. Factors such as farm size, type of operation, location, and other factors impact the insurance needs of a farm operation.

More information on LLCs and other alternative business organizations through the National Agricultural Law Center is here.

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USDA Seeks Public Comment on Postponed GIPSA Rules

Written by: Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

The Grain Inspection, Packers and Stockyards Administration (GIPSA) is delaying the implementation of the Farmer Fair Practices rules. GIPSA is a USDA agency that facilitates the marketing of livestock, poultry, meat, cereals, oilseeds, and related agricultural products. One purpose of GIPSA is to promote fair and competitive trading practices for the benefit of consumers and agriculture.

On April 11, 2017, the USDA announced that GIPSA delayed the implementation of the Farmer Fair Practices rules until October 19, 2017. The delayed Farmer Fair Practices rules were originally set to be effective on December 20, 2016. According to the USDA, the delayed rules would protect chicken growers from retaliation by processors when growers explore opportunities with other processors, discuss quality concerns with processors, or when refusing to make expensive upgrades to facilities. GIPSA concludes that the Farmer Fair Practices rules alleviates these issues. However, several livestock groups argue that the delayed rules would have adverse economic effects on the livestock industry.

Opportunity for Public Comment

During the delay, the USDA is seeking public comment on the Farmer Fair Practices rules. The comment period offers the agricultural community an opportunity to suggest what action the USDA should take in regard to the Farmer Fair Practices rules. The USDA asked the public to suggest one of four actions that the USDA should take:

  1. Let the delayed rules become effective
  2. Suspend the delayed rules indefinitely
  3. Delay the effective date of the delayed rules further, or
  4. Withdraw the delayed rules

After receiving public comments, the USDA will consider the comments and make an informed decision regarding the delayed Farmer Fair Practices rules. According to Drovers, Secretary of Agriculture Sonny Perdue recently visited Kansas City, Missouri to speak with farmers, ranchers, and industry members. During the event, Secretary Perdue responded to a question about the GIPSA rule. “We’re going to look at it very closely,” said Perdue. The full Drovers article is here.

More information on the delayed GISPA rules is here. Leave a public comment on the delayed rules here by clicking “Comment Now.”

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Farmers Have One Month to Decide Whether to Stay in Syngenta Litigation

Farmers are receiving a lot of attention from law firms these days, from video mailers to offers of free consultations, dinners, hats and more.  The purpose of these marketing efforts is to entice farmers away from participating in the current class action lawsuit against Syngenta.  Law firms want farmers to exclude themselves from the class action litigation and participate in individual lawsuits their firms would bring against Syngenta.  With a deadline of April 1 looming, farmers must decide whether to remain in or step away from the class action lawsuit.

The class action lawsuit, known as “In re Syngenta AG MIR162 Corn Litigation,” is pending before the U.S. District Court in Kansas.  It is one of two major lawsuits regarding corn rejected by China in 2013 because China had not yet approved Syngenta’s Duracade and Viptera brands of genetically-modified corn.  The lawsuit consolidated hundreds of similar federal court cases that all claimed that Syngenta should be liable for the drop in corn prices that followed China’s rejections because Syngenta stated that it had obtained all necessary regulatory approvals for Duracade and Viptera, but instead released the seed before receiving China’s approval.

Class Certification

Last September, the court certified the litigation as a class action lawsuit, which allows the case to commence on behalf of all class members.  Any farmer that fits within the class definitions is automatically included in the lawsuit and does not have to pursue individual litigation against Syngenta.  The court established a nationwide class of “producers,” defined as any person or entity listed as a producer on an FSA-578 form filed with the USDA who priced corn for sale after November 18, 2013 and who did not purchase Viptera or Duracade corn seed (farmers who used Syngenta’s seed have different legal claims).  The nationwide class is for producers bringing claims under federal law.  The court also certified eight state classes for producers bringing claims under state laws, including Ohio.  Syngenta appealed the class certification, but the Tenth District Court of Appeals denied the appeal.

Ohio farmers who fit the definition of “producers” are now automatically members of both the nationwide and Ohio classes.  This means that every Ohio producer can receive a share of any award or settlement that results from the litigation, with required documentation.  However, Ohio producers may choose to exclude themselves from or “opt out” of their classes and bring their own individual actions against Syngenta.  The district court required attorneys for the class action suit to notify all potential producers of the lawsuit and of a producer’s right to be excluded from the litigation.   A producer must send an exclusion request by April 1, 2017, following the process for exclusion stated in the court’s order, available here.

Pros and Cons of Staying in the Class

A major benefit of remaining in the class action lawsuit is convenience.  Class members in the lawsuit have no responsibility for the proceedings, which falls upon the attorneys who represent the entire class.  However, convenience comes at the cost of deferring decision making authority and losing a share of the award or settlement to court-ordered attorney fees, although class members may file objections to such decisions.  Exclusion from the class gives producers freedom to pursue their own actions, which will likely lead to a stronger role in decision making and the ability to negotiate attorney fees.  Exclusion also allows a farmer who may not agree with the litigation on principal to dissociate from the lawsuit.

What’s Next?

The court has scheduled “bellwether” cases in the lawsuit, which will go to trial in June.  Bellwether cases are chosen to be representative of the class.  Allowing these cases to go to trial gives an indication of how the litigation will play out—the strength of each side, how juries react and how the law applies to the situation.   Upon completion of the bellwether cases, both sides should be better able to decide whether to settle the lawsuit or continue with litigation.

The U.S. District Court’s website for the Syngenta class action lawsuit is http://www.ksd.uscourts.gov/syngenta-ag-mir162-corn-litigation/

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New Law Increases Access to Ohio Small Claims Court

The Ohio General Assembly has enacted a law that raises the monetary limit for cases handled through Ohio’s small claims court system.  To read this post, visit our new blog site at http://aglaw.osu.edu/blog.

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Ohio Creates New “Farm Winery” Liquor Permit

Governor Kasich has signed legislation to create a new “Ohio Farm Winery Liquor Permit.” To read this post, visit our new blog site at http://aglaw.osu.edu.

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OSU Extension to Offer Farmland Leasing Workshops in February

Ohio State University Extension will offer four Farmland Leasing Workshops throughout Ohio next month.  The three hour workshops will include topics of interest to both landowners and farm operators, such as factors affecting leasing options and rental rates, analyzing rent survey data and legal requirements and provisions for farm leases.  To read this post, visit our new website at aglaw.osu.edu/blog.

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Webinar will Help Attorneys Guide Clients through the New Farm Bill

Attorney Bill Bridgforth will present OSU’s next webinar on “The 2014 Farm Bill:  Guiding a Client through the New Law” on Friday, January 9 at 1 pm EST.  Bridgforth is a senior partner in the Arkansas law firm of Ramsay, Bridgforth, Robinson & Raley, LLP who represents agricultural producers around the United States.  He will explain the election decisions producers and landowners must make under the new Farm Bill and will provide examples of decision making impacts.

There is no registration or fee required for the webinar, which is accessible at https://carmenconnect.osu.edu.  A recording of the webinar and a listing of additional webinars is available at aglaw.osu.edu.

The Ohio Food, Agriculture & Environmental Law Webinar Series is an outreach project of OSU Extension’s Agricultural & Resource Law Program.

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