AgDM newsletter article, May 1998

Networking entities

Neil Harlby Neil E. Harl, Charles F. Curtiss Distinguished Professor of Agriculture and Professor of Economics, 515/294-6354, harl@iastate.edu

House File 2335, signed April 16, 1998, adding Chapters 10 and 10B of the Iowa Code

In an effort to allow farmers and farming operations to "network" in designated areas of production notwithstanding the Iowa limitations applicable to farm corporations, limited partnerships, limited liability companies and trusts, the Iowa General Assembly has enacted legislation authorizing four new categories of entities.  The 1998 legislation also provides for penalties for violating the new rules and requires reports about entity operations.

The new legislation makes extensive use of definitions which are unique to this bill.  Care should be exercised in checking the meaning of terms appearing in the new law.

New landholding entities identified in the legislation

Networking farmers’ corporation (Act Secs. 103, 104, Iowa Code §§ 10.3, 10.4)

Under legislation signed into law on April 16, 1998, a “networking farmers corporation” may hold agricultural land in Iowa if all of the following conditions are met—

A shareholder is considered to own the same percentage of the agricultural land held by the entity.  In general, that acreage counts for purposes of the acreage limitation previously imposed on authorized farm corporations, authorized limited liability companies and authorized trusts.  However, a “cooperative association” may hold an interest in any number of “farmers entities” if the total number of acres held by the farmers’ entities and attributable to the cooperative association is 640 acres or less.  A “farmers entity” means a networking farmers entity, a farmers’ cooperative limited liability company or a farmers’ cooperative association.  A “networking farmers entity” is defined as a networking farmers’ corporation or a networking farmers’ limited liability company.

A transfer of an interest in a networking farmers’ corporation by operation of law (such as by death, bankruptcy or foreclosure) can be disregarded for a period of two years.

The legislation imposes a limit on those holding an interest in a networking farmer's corporation if the person holds a 25 percent or greater interest in such an entity having six or fewer shareholders or the person holds a 15 percent or greater interest in such an entity with seven or more shareholders.  Under the limitations, a person holding an interest in a networking farmers’ corporation cannot hold an interest in another farmers’ entity if the conditions are met.  A person holding a majority interest in an authorized entity (corporation, trust or LLC) cannot hold a majority interest in a networking farmers’ corporation.  A “commodity share landlord” owning an interest in a networking farmers’ corporation holding agricultural land must rent an additional 150 acres of agricultural land on a commodity share basis for each farmers’ entity holding agricultural land in which the commodity share landlord acquires an interest.

A “networking farmers corporation” is defined as a corporation, other than a family farm corporation, if all of the following conditions are satisfied—

Networking farmers LLC (Act Secs. 105, 106, Iowa Code §§ 10.5, 10.6)

Provisions similar to those applicable to a “networking farmers corporation” apply also to a “networking farmers limited liability company.”  Differences exist in terms of the conditions that must be met—

The term “networking farmers limited liability company” means a limited liability company, other than a family farm limited liability company, if all of the following conditions are met—

Farmers cooperative association (Act Secs. 107, 108, Iowa Code §§ 10.7, 10.8)

Under the 1998 legislation, a “farmers cooperative association” (FCA) may hold agricultural land in Iowa if all of the following conditions are met—

However, a farmers’ cooperative association may enter into an agreement under a lease or production contract with a person to produce the forage or grain, if the FCA does not receive forage or grain in payment under the agreement.  The lease or contract may specify the type of forage or crop that must be produced and provide that the FCA has a right to purchase the forage or grain on the same terms and conditions as the highest bona fide offer received by the person for the forage or grain, within a period agreed to in the lease or production contract.

Most of the rest of the rules for farmers’ cooperative associations parallel the provisions for networking farmers’ corporations.

For purposes of the attribution of agricultural land to members of the cooperative (for purposes of the established acreage limits)—

For this purpose, a “farmers cooperative association” is defined as a cooperative organized under Ch. 490 or Ch. 499 of the Iowa Code if all of the following apply—

A farmers’ cooperative association may not acquire an interest in agricultural land or in a farmers’ entity unless a resolution is adopted, notice is given and dissenters are assured that their interest will be purchased at “fair value.”

Farmers cooperative limited liability company (Act Sec. 109, Iowa Code § 10.9)

The authority for a “farmers cooperative limited liability company” to hold agricultural land is similar to that of a “farmers cooperative association.”

The term “farmers cooperative limited liability company” is defined as a limited liability company if all of the following apply—

A farmers’ cooperative LLC must meet all of the following conditions—

Penalties (Act Secs. 110-113, Iowa Code §§ 10.10-10.13)

The 1998 law imposes a civil penalty of not more than $10,000 and divestiture of the land on a person violating a landholding restriction.

A penalty of not more than $1,000 may be imposed on a member or shareholder of an entity in violation of the limitations.

Reports (Act Secs. 201-207, Iowa Code §§ 10B.1-10B.6)

Annual reports are required of entities created in accordance with the legislation.  The reports are available to legislators and committees of the General Assembly.  A statement making the reports confidential and not a matter of public record was eliminated by amendment before passage and is not in the bill as signed.  A penalty of up to $1,000 may be imposed for failure to file a report.

Effective Date

The legislation is effective on enactment, April 16, 1998.

 

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