What is a Limited Liability Company?

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Private landowners that wish to transfer a family farm, ranch, or forest to future generations may consider forming a limited liability company (LLC) to aid in the process.  By forming an LLC to manage the property, you can include children in the management of the land before you pass and can provide a management structure for it after you pass. It will also allow you to transfer your land to multiple heirs without having to physically split up the land and business, since you will transfer to your heirs shares in the company instead of the land itself.

In terms of forming a company, an LLC is one of the easier types to form and provides flexibility on how the LLC will be managed. There are no limits as to how many members may be in an LLC or what their relationship to each other is. Another benefit of an LLC is that it can be formed to manage the property for profit, investment, or conservation.  An LLC provides members with liability protection, like a corporation, but also pass-through taxation, like a partnership, thus LLCs are considered to have the best of both worlds in that respect.

The first step to forming an LLC is to draft the governing documents, or the articles of incorporation and bylaws. The articles of incorporation is a public document that establishes what the purpose of the LLC is and who started it. Usually, it must include the name and address of the person starting the LLC (or the founder) and the name of the LLC, which must include “LLC” or some other relevant term indicating it as such. Additional requirements will be determined by state law. Once you file the articles of incorporation with the Secretary of State and pay the associated fees, you will be notified that your LLC has been formed. You must then set up the internal governing rules of the LLC, or the bylaws. These usually establish how the land and business under the LLC will be managed and who has what rights to manage it. At this point, the founders can transfer the title of the land to the LLC.

For more information on LLCs consider reading A Sustainable Family Forest LLC or contact a local land use professional.