The following guest post “Do farmers need to incorporate?” was written for beginningfarmers.org by our good friend Jason Foscolo.
Jason has over 10 years of experience as an attorney, and is passionate about assisting farmers and food entrepreneurs in developing sustainable agriculture businesses. He specializes in assisting with market access, cooperative development, direct marketing, food safety rules, product liability, certification programs, product labeling, grant funding, and more. You can find more great posts like this, and can contact him through his Food Law Blog.
Here’s what he had to say in response to a question I asked him about about the importance of farm incorporation:
“My advice is to always treat a farm as a business. The first step any business owner should take is to ensure that his or her personal assets are kept separate from company assets. A beginning farmer can do this by adopting one of several appropriate business formats that will grant you this type of protection. These formats, generally, are the limited liability company, the c-corporation, or the s-corporation.
Any one of these business forms, if properly maintained, will protect your personal assets from the legal obligations of the company. Corporate legal obligations are debts and civil judgments incurred during the ordinary course of business. Debts at least have a known amount, which is a satisfactory risk management tool in itself – do not borrow more than you know you can repay. But businesses and farms fail all the time, so it is important to keep corporate financial obligations distinct from your personal property.
On the other hand, civil liability for illness caused by food products is a potentially limitless source of risk for any farming operation. It is difficult to over-state the need for limited liability in the food production business. In most states, anyone who makes food and sells it to customers is held strictly liable in civil court for the illness or harm caused by their food products. Strict liability essentially means that a farmer or food processor is liable without regard to negligence. Therefore, if a food product causes an illness, it is no defense that the farmer washed the product thoroughly, checked the temperature repeatedly during preparation, or adhered to the most modern HACCP plan available. If someone gets sick from your product, there is almost no way to avoid financial responsibility for the full amount of harm it caused. Unlike financial debts, product liability risks cannot be easily assessed because civil judgments can vary wildly. The only way to manage the risk is to adopt a corporate form.
In farming, land is livelihood. Land is also a very valuable asset which will entice creditors and judgement holders to pursue their claims. Protecting land and livelihood begins with the appropriate corporate form to limit personal liability for corporate actions.”