1. Urban Food, Farm & Agriculture
Law Practicum
Selecting the Appropriate
Legal Structure
Mitchell Widener

2. Urban Food, Farm & Agriculture
Law Practicum
What is a Business Entity?
• Anything other than a
natural person that can
enter contracts, incur
debts an hold assets in
its own name.
1.
2.
3.
4.
5.
Corporations
LLCs
Cooperatives
3LC
Nonprofit

3. Urban Food, Farm & Agriculture
Law Practicum
Corporations
• Comprised of three different groups of people:
Shareholders, directors, and officers
• The shareholders own stock; the directors and officers run
the company
• Who’s liable? (who gets sued if something goes wrong?):
• Shareholders have no personal liability
• Generally, directors and officers have no liability besides personal
wrongful action (stealing money, etc.)
• Who’s taxed? Corporations are double taxed
• Corporation itself gets taxed as a separate entity
• Shareholders subject to individual tax on own shares

4. Urban Food, Farm & Agriculture
Law Practicum
Corporation Formation
• Articles of Incorporation must
include
– Name of the corporation
– Name and address of each
incorporator
– Statement of the corporation’s
purpose
– Information about corporation’s
stock
• Bylaws
– Establish procedure,
responsibility and meeting
regulation
– Adopted by the Incorporators at
the Organizational Meeting
– Amended, repealed, created by
shareholders
Corporations not required to have
bylaws

5. Urban Food, Farm & Agriculture
Law Practicum
Is a corporation for you?
• Typically, not ideal for small businesses.
• Usually used by the largest of companies
• Disadvantages for small businesses:
– Establishing and maintaining a corporation is tedious and complex
– Double-taxed

6. Urban Food, Farm & Agriculture
Law Practicum
Limited Liability Company (LLC)
•
Who’s in control?
– Member Managed: Better for LLCs with fewer members
– Manager Managed: Better for larger LLCs
•
Who owns it? Members. They put in the money and reap rewards
•
Liability: No personal liability for members
•
Taxes: each member/s profits taxed at the individual level
•
Formation
– Articles of Organization: Name, address, etc.
– Operating Agreement : contract between members of an LLC which govern its
affairs and business operations and the relationships of its members an
mangers
• LLC does not require an operating agreement

7. Urban Food, Farm & Agriculture
Law Practicum
Is an LLC for you?
• Advantages
– No personal liability
– Flexibility in
management
• You choose how the LLC
operates: membership,
management, etc.
• Disadvantages
– Filing procedures
different in ever state
– Unfamiliarity with the
business structure
Verdict:
• Run your own business with only have a few members?  member managed
LLC seems like the right fit.
• Don’t have the money?  manager managed LLC works. You still control the
day-to-day activities.

8. Urban Food, Farm & Agriculture
Law Practicum
Cooperatives
• Co-ops are groups of individuals or businesses
who come together to form a working group.
• The group pools its resources to assist in
developing and marketing
• Benefits: small groups who generally would
not have the resources to market on their own
– Strength in numbers

9. Urban Food, Farm & Agriculture
Law Practicum
Cooperatives
Organizational style very similar to a corporation
• Control: Directors or officers
• Money: shareholders
• Liability: no liability
• Taxes: shareholders and corporation
– Agricultural co-ops may receive tax-exempt status
• Formation: Articles of Incorporation

10. Urban Food, Farm & Agriculture
Law Practicum
Is a Cooperative for You?
• Advantages:
– Access to established
marketing groups
– Access to supplies
• Disadvantages
– Less control
– Percent of profits must
go towards co-op

11. Urban Food, Farm & Agriculture
Law Practicum
Nonprofits
• Corporation established specifically for the purpose of serving
a public need
– Profits go towards furthering that public need
• Organized like a corporation (shareholders, directors, officers)
• Money: Shareholders cannot earn income from nonprofit, but
directors/officers may be paid
• Liability: same as corporation
• Tax: **most agricultural nonprofits are tax-exempt

12. Urban Food, Farm & Agriculture
Law Practicum
Is a Nonprofit for you?
• If you primarily want to make a profit, then no
• However, if you a religious organization or
community development, for example, that
wants to grow, then yes.
– The profits would just need to go back towards the
public interest or need

13. Urban Food, Farm & Agriculture
Law Practicum
L3C
• A combination of nonprofit and LLC
– A Low Profit LLC
• Nonprofit The company was primarily formed to further a
public purpose.
• LLC The company may produce income
• Appropriate purposes: religious, charitable, scientific,
educational
– May not attempt to influence legislation or participate in political
campaigns
• **not tax exempt
• Present in only 9 states: Michigan, Illinois, Louisiana, Maine,
North Carolina, Rhode Island, Utah, Vermont, and Wyoming