North Dakota has what are generally referred to as “corporate farming laws.” Corporate farming laws generally restrict corporations and limited liability companies from owning and operating farms/ranches and from owning and leasing farmland/ranchland.
According to the National Agriculture Law Center “[t]he primary goal of corporate farming laws is to protect the economic viability of family farms in light of the threats from competition with corporate-owned or corporate-managed farms.” Another commentator argues:
- This particular act was given birth in the June primary of 1932 through an initiated measure approved by a vote of 114,496 to 85,932 and is now found in a slightly amended form as Chapter 10-06 of the North Dakota Revised Code of 1943. At the time of its adoption by the people of this state North Dakota was at the bottom of the great depression, and I believe it safe to say that the Act was aimed in large measure at life insurance companies and outstate corporate lenders which had foreclosed on thousands of acres of North Dakota agricultural land.
McElroy, T. P. (1960) “North Dakota’s Anti-Corporate Farming Act,” North Dakota Law Review: Vol. 36: No. 2 , Article 2.
Regardless of origin, North Dakota still has these restrictions, and they are now found in chapter 10-06.1 of the North Dakota Century Code. Section 10-6.1-12 contains the general restriction. A number of exceptions exist, but the most common exception is found in Section 10-6.1-12. Section 10-6.1-12 allows corporations and LLCs to engage in farming and ranching if it meets all the following exceptions: (1) less than 15 shareholders; (2) each shareholder must be related to the other shareholder; (3) must be an individual (or trust/estate of individual); (4) United States citizenship; (5) one of the officers/managers must be “actively engaged” in operations; (6) at least 65% of gross income must come from farming/ranching operations; and (7) must own or lease farmland in North Dakota.
Many people wanting to form a business entity to own and lease farm and ranchland simply avoid the restriction in Chapter 10-6.1 altogether by forming a type of partnership (such as a general partnership, limited partnership, limited liability limited partnership, or limited liability limited partnership). Choosing the right type of partnership entity is complex and depends on individual circumstances and preferences.
If you need advice regarding corporate farming laws in North Dakota, please contact our Business Law Group to discuss your options.