1. Overview of Business Entities,
Liabilities and Insurance
GrowNYC
January 8, 2015
By Cari B. Rincker, Esq.

2. Who I Am
• Grew up on a beef cattle
farm in Illinois
– Advanced degrees in
animal science
• Chair of the ABA, General
Practice, Solo & Small
Firm Division’s Agriculture
Law Committee
• Client base ranges from
agriculture producers &
food entrepreneurs to
mid-size agri-businesses

3. We Will Be Talking New York Law Today
• Law on business entities and
formations varies slightly from
state-to-state
• If you are interested in the law
in other states, please speak
to an attorney licensed in that
jurisdiction
– I’m licensed in New York,
New Jersey, Connecticut,
Illinois, & Washington D.C.

4. One More Disclaimer
• I am a lawyer but not necessarily your lawyer
unless you’ve signed a retainer agreement with
Rincker Law, PLLC (which creates attorney-client
privilege)
• Today’s presentation is for informational
purposes only should not be considered legal
advice
– Before making decisions for your farm or food
business, it is always best to have a candid
conversation with an attorney about your specific
circumstances

5. Overview
• 3 Big Topics
– Business
Formation
– Liability
– Insurance

6. Choices of Business Entities
• Cast of Characters
– Sole Proprietorship
– Partnerships (general and
limited)
– Corporations
– Limited Liability Companies
– Trusts
– Cooperatives
– Not-for-Profit Corporations
Let’s break them down..

7. Sole Proprietorship
• This is an informal legal
entity formed with 1 person
• Unlimited personal liability
– Big disadvantage
• This is a common choice of
business entity
– Default when a business only
has one owner and hasn’t
formed another entity

8. Sole Proprietorship
• Filing Requirements
– No filing requirements with
the NYS Department of State
– No filing fees!
– Should file a Certificate of
Assumed Name with the
County Clerk if a d/b/a under
NY General Business Law
§130
• $110 in New York County
Examples: Farmer Jane Smith d/b/a
Jane’s Pumpkin Patch & Hay Rides
Cari Rincker d/b/a Rincker Cattle Co.

9. Sole Proprietorship
• Although not required, should
consider obtaining a Federal
Employer Identification
Number (“FEIN”)
– If a sole proprietorship does not
obtain a FEIN then it will have to
put its social security number
on tax forms if independent
contractors or employees are
hired
• Also consider opening up a
separate business bank
account with the FEIN

10. Partnerships
• Definition of a Partnership
– When more than one person
goes into business together to
share profits (not necessarily
losses)
– Can be formed inadvertently
How many of you have formed a partnership
at some point? Partnerships are very common
in the food and agriculture industry.

11. 2 Types of Partnerships
General
Partnership
Limited
Partnership
General Partnerships are more common
in the food and agriculture industry

12. General Partnerships
• Definition: Where two or more
people go into business together
and share profits without forming
another formal entity (e.g., LLC,
LLP, corporation)
• Liability: Each partner is jointly
and severally liable for the debts of
the partnership- no liability shield
– Unless stated differently in the
general partnership agreement,
each partner has the authority to
bind the partnership without the
express written consent of all
partners

13. General Partnerships
• Filing Requirements
– GBL § 130 requires partners
carrying on business as a
partnership to file a certificate
with the county clerk in each
county in which the
partnership is going business
– Failure to file a certificate
doesn’t affect the rights of any
third persons and doesn’t limit
the liability of any partners
under the provisions of the
New York Partnership Law

14. Limited Partnerships (the “LP” or “LLP”)
• A limited partnership requires at
least one limited partner and at
least one general partner
– Limited Partner:
• Limited liability protection
• Must not participate in the
management of the
partnership under NY
Partnership Law (“PL”) § 121-
303
– General Partner:
• Unlimited personal liability
• Makes all the day-to-day
decision-making

15. Limited Partnerships
• Filing Requirements
– Must file a Certificate of
Limited Partnership with
the NYS Department of State
pursuant to NYS Revised
Limited Partnership Act
(“RLPA”) § 121-201
– Costs $200
– Must be filed by the general
partner(s)

16. Limited Partnerships
Limited Partnership Agreement
– RLPA requires a limited partnership agreement
– Partnership agreements are very important for all
types of partnerships but paramount for limited
partnerships
• Identification of the ownership units of each limited
and general partner
• Capital contribution
• How profits and losses will be divided
• Responsibilities, duties, and restrictions

17. Limited Partnerships
• A few of you might be thinking, “what’s the
point?”
• Limited Partnerships or Family Limited
Partnerships (“FLP”) are helpful succession
planning tools.
– The limited and general partners don’t have to be
people – they can be entities. If a farm operation
has broken its business down into multiple
business entities, a limited partnership can be a
nice cover layer for farms concerned about the
estate tax.

18. Corporations
• Every owner (or
shareholder) is given
liability protection so long
as the corporation is
properly capitalized and
adheres to corporate
formality requirements
– Corporations have more
corporate formality
requirements than limited
liability companies

19. Types of Corporations for Taxes
• Taxed on its earnings and its shareholders taxed from the corporation
(i.e., double taxation)
• Can be a publically traded company
C-Corporations
• Pass-through tax for shareholders (no corporate tax)
• Requires 75 or fewer shareholders who are natural persons, no non-
resident alien shareholders, and only 1 class of stock
S-Corporations
• Charitable “for profit” entity – working for the public benefit
B-Corporations

20. Corporations
• Filing Requirements
– Must file Certificate of Incorporation
with the NYSDOS pursuant to NY
Business Corporation Law (“BCL”) §
402
– $125 plus applicable tax on shares
• Internal Documents
– Bylaws discuss internal governance
• Shareholders elect Board of Directors,
who manage corporate affairs
• Board of Directors elect officers under
BCL § 715
– Might also choose to have a shareholder
agreement

21. Limited Liability Companies
• Nice hybrid between
partnerships and corporations
– can decide how to be taxed
(e.g., C-corp or S-corp)
• Liability protection for the
owners (called “members”) so
long as the LLC is properly
capitalized and LLC formalities
are properly adhered to

22. Limited Liability Companies
• Filing Requirements
– Must file Articles of Organization
with the NYSDOS pursuant to
Section 203 of the New York State
Limited Liability Company Law
(“LLCL”)
– Must also comply with
publication requirement
• Can be expensive in New York,
depending on the county
• Internal Documents
– Operating Agreement

23. Piercing the Corporate Veil
• Simply because your farm or
food business forms a
corporation or limited liability
company, does not mean that a
court will not hold the owners
personally liable for the
company’s debt
• Court can “pierce the corporate
veil” if:
– Grossly undercapitalized
– Flagrant disregard for corporate
formalities
– Owners treat corporation as
their “alter ego”

24. Keeping the “Corporate Shield”
• Get a corporate formalities
“check-up”
– Are you up to date?
• Annual member/board of director
minutes
• Look at the Operating Agreement
or Bylaws to ascertain what you
need
– Have you properly complied with
formation requirements?
• Example: I meet a lot of LLC
business owners that haven’t
complied with publication
requirement in New York and don’t
have an Operating Agreement

25. Keeping the Corporate Shield
• Keep personal assets and
corporation/LLC assets
separate
– Don’t co-mingle assets
• Put contracts and title of
corporation/LLC property in
the business name
– Use corporation/LLC
letterhead

26. Cooperatives
• Multiple people organized to carry
on business on a cooperative basis
• Cooperatives are formed for the
mutual benefit of the members
(owners) – CCL § 40
• Usually, cooperatives are formed
so that members may procure
goods and services on a collective
basis or market their products
through a group activity

27. Classifications of Cooperatives
Agricultural
• for the purposes of “marketing, processing,
manufacture, sale or other dispositions of agricultural
products, agricultural waste products, or agricultural
compost, … or the purchase of supplies for producers
of agricultural products.” CCL § 15.
Non-agricultural
• Example: cooperative apartment building

28. Management of Cooperatives
• Analogous to business
corporations
– Few differences
• Owned by members (vs.
shareholders)
• May be formed with or without
capital stock (returns are limited
under the law)
• Democratically controlled
– One member = one vote; or
– Proportional voting system
– Like corporations, managed by a
Board of Directors, elected by
the members

29. Trusts
• Vocabulary
– Creator
– Trustee
– Beneficiary
• Trusts are another form of
business entity for food
and agriculture businesses
and can be utilized in a
variety of scenarios
• Can also be a useful estate
planning tool

30. 2 Basic Trusts
• Trusts should almost always be revocable
• Retain control of all the assets in the trust
• Example: Living Revocable Trust
Revocable Trusts
• Can be beneficial in limited circumstances, such as Medicaid
• Assets are no longer yours and you cannot make changes
without the beneficiary’s consent
• Appreciated assets are not subject to estate taxes
• Example: Irrevocable life insurance trust
Irrevocable Trusts

31. Example of Revocable Living Trust
• A farm family who wants to
give their child livestock,
land, and/or cash property
in the from of a trust
– Graduated control (age 22,
26, 30)
– Could open up own bank
account
– Name on registration papers
for livestock had to be in the
name of the trust

32. Example of Revocable Living Trust
• Grandparents put the farmland in a
RLT
– Grandparents are the trustees
– Children are the beneficiaries
– Grandchildren are the contingent
beneficiaries
• Like a LLC or corporation, trusts
have to maintain various formalities
• Big advantage with trusts: passes
by operation of law and avoids
probate
– Private
– Transfer is automatic –this is helpful
if the farm is involved in federal farm
programs

33. Examples Specialized Trusts
•Created in a Last Will and Testament
Testamentary Trusts
•Also created in a Last Will and Testament
•Bequeath an amount to the trust up to but not exceeding the estate-tax exemption; then pass
the rest of the estate to your spouse tax-free
•Forever free of estate tax, even if it appreciates
Credit Shelter Trust (a/k/a Bypass or Family Trust)
•Allows one to transfer a substantial amount of money tax-free to beneficiaries who are at least
two generations younger (i.e., grandchildren)
Generation-Skipping Trusts (“Dynasty Trust”)
•For the benefit of companion animals, including horses
Pet Trusts

34. Not-for-Profit Corporations
• A nonprofit corporation doesn’t
mean that the entity doesn’t make
profit – its profit is just not
distributed with the
shareholders/owners
– Not-for-profit does not mean no
profit! It’s okay to make money
– Can pay employees a salary like any
other type of business
– Restrictions and oversight on how
money can be spent
– Corporate formalities similar to for-
profit entities
– Filing fee in New York is $75 for the
Certificate of Incorporation
– Must also comply with federal tax
code

35. Not-for-Profit Corporations
• Like for-profit corporations,
it must have Bylaws
– Examples of Bylaws for
farmers’ markets can be
found on the Farmers Market
Coalition website
– Should be drafted broadly,
but should include:
• Purpose
• Board of Directors
• Methods of operation

36. Tax Exempt Status
• Forming a not-for-profit corporation is a two step
process
– Step 1 is filing papers with the NYSDOS
• Trade associations need approval from the NY Attorney General
first
– Step 2 is filing papers with the Internal Revenue Service if
the not-for-profit organization seeks tax-exempt status
• Not all not-for-profits are eligible for 501(c)(3) status (charitable
organizations)
• Misconception that a a not-for-profit has to be a 501(c)(3)
• Forming a not-for-profit corporation is much more
complicated than forming a for-profit corporation

37. Tax Exempt Status
• Food and agriculture
organizations have 3 primary
choices in becoming a tax-
exempt organization
– 501(c)(3)-Charitable organization
– 501(c)(4)
– 501(c)(5)
• These are sections in the tax
code under 26 United States
Code (“USC”).
• Section 501(c) enumerates the
list of tax exempt organizations

38. 501(c)(3) – Charitable Organizations
“Corporations, and any community chest, fund, or foundation, organized
and operated exclusively for religious, charitable, scientific, testing for
public safety, literary, or educational purposes, or to foster national or
international amateur sports competition (but only if no part of its
activities involve the provision of athletic facilities or equipment), or for
the prevention of cruelty to children or animals, no part of the net
earnings of which inures to the benefit of any private shareholder or
individual, no substantial part of the activities of which is carrying on
propaganda, or otherwise attempting, to influence legislation (except as
otherwise provided in subsection (h)), and which does not participate in,
or intervene in (including the publishing or distributing of statements),
any political campaign on behalf of (or in opposition to) any candidate for
public office.”
(Emphasis Added)

39. Charitable Deduction
• Being able to form a
501(c)(3) offers
several advantages for
a not-for-profit
organization,
primarily that
donations will be
considered charitable
contributions

40. Example: New York Agri-Women
• I am the Founding
Member of New York
Agri-Women.
• Its purpose is three-fold.
To educate:
– The fellow agriculture
community
– Consumers
– Elected Officials
• Are we eligible for
501(c)(3) status?

41. 501(C)(4)- Civic Organizations
“(A) Civic leagues or organizations not organized for profit
but operated exclusively for the promotion of social
welfare, or local associations of employees, the
membership of which is limited to the employees of a
designated person or persons in a particular municipality,
and the net earnings of which are devoted exclusively to
charitable, educational, or recreational purposes.
(B) Subparagraph (A) shall not apply to an entity unless
no part of the net earnings of such entity inures to the
benefit of any private shareholder or individual.”
(Emphasis Added)

42. 501(c)(5)- Labor, Agriculture or
Horticulture Organizations
“Labor, agricultural, or horticultural
organizations.”
• Usually designed to encouraged
improvement in animal breeding
and farming.
• Can promote agriculture,
horticulture and civic activities
among rural residents

43. Liability

44. Liability
• 2 Main Types of
Liability
– Premises Liability
– Products Liability

45. Premises Liability
• Applicability with Local Food
– Farmers’ Markets
– Roadside stands
– Pick-Your-Own
– Agri-Tourism/ Agri-Tainment
– On-Farm Sales
• Livestock
• Produce
• Meat
• Dairy
– Farm Tours
– Cooking Classes

46. Premises Liability
• Property Owner Has
Different Standards of
Care
– Trespassers
– Children
– Licensees
– Invitees
• This is what we’ll focus on

47. Premises Liability: Invitees
• Landowners owe the highest
duty of care to an invitee, or
members of the public that
enter the land for the purpose
of business dealings.
• Examples include the following:
(1) farmstands, (2) pick-your-
own produce, (3) cooking
classes, (4) on-farm horse or
livestock sales, (5) corn mazes,
(6) hay rides, (7) petting zoos,
and (8) farm tours.

48. Premises Liability: Invitees
• Landowner will be subject to liability for
physical harm caused by invitees by a
condition on the land if he/she failed to
exercise reasonable care and he/she knew or
should have known about the harmful
condition and it would be expected that the
public would not discover the dangerous
condition.
– Landowners have the duty to warn invitees of
potentially dangerous conditions.

49. Premises Liability: Invitees
• Landowners who have members
of the public come on their
property should use barriers to
prevent the public from entering
areas of the property that may
be potentially hazardous. There
should be signs warning invitees
of potential hazards.
• Landowners with pets should be
particularly mindful of potential
injuries (e.g., dog bites).
My dog, Taylor

50. Products Liability
• Products liability is the legal
responsibility for personal injuries
and property damage caused by
defective products.
– Potential liability attaches to
every set of hands that touch a
food product until it gets to the
consumer.
• Farms and food entrepreneurs
selling food directly to the
consumer increase their likelihood
for potential products liability
issues.

51. Products Liability
• States differ in the
products liability theory
they employ – New York is
a strict liability state.
– To illustrate, if a consumer at a
pick-your-own farm picks and
then consumes berries and
becomes ill because the
berries were contaminated, a
New York court will likely hold
the producer strictly liable for
the consumer’s injuries.
Some products like meat and dairy,
have more products liability risk.

52. Common Risk Management Methods
• Business Organizations
– Limited Partnerships
– Limited Liability
Companies
– Corporations
• Insurance
– We’ll talk more about this
next
• Food safety/sanitation

53. Insurance

54. Insurance is a Contract
• Drafted in favor of the
insurance company
• Not all insurance products
are the same
– Food and agriculture lawyers
should review insurance
policies for the client to
ensure there are not any
concerns
– Pay attention to the duties of
the client under the insurance
policy

55. Insurance is a Contract
• Insurance Company
– Duty to indemnify the
insured
– Duty to defend the
farmer/food entrepreneur in
a law suit for a covered risk
• Insured
– Duty to pay the premium
– Duty to cooperate
– Duty to disclose toe the
insurance company relevant
information

56. Duty to Defend
• The insurance company’s duty
to defend is carried out by
hiring an attorney chosen by
the company and controlling
that attorney’s right to settle.
• If the farmer or food
entrepreneur is dead set
against settling, the insurance
company has the right to do so
anyway.
• Once the insurance company
pays out its policy limits, it has
no further duty to defend the
farmer or food entrepreneur.

57. Insurance is a Risk Management Tool
• Put simply, the purpose of an
insurance policy is to shift
the financial risk of the food
and agriculture operation to
the insurance company.
• The insurance company will
pay any covered claim (up to
the limit) and defense costs
in a lawsuit (including
attorneys’ fees and court
costs).

58. Insurance is a Risk Management Tool
Clients might be tempted to
save money on insurance
premiums (the cost of the
insurance) by hand-selecting
only limited coverages that they
think they are likely to need
with high deductibles (the out-
of-pocket amount they’re
responsible for if a loss occurs).

59. Insurance is a Risk Management Tool
Inadequate amounts of
insurance that won’t pay
out what the farmer or
food entrepreneur will
need to stay up and
running if a loss occurs.

60. Claims-Made vs. Occurrence Based
Claims-Made
• Will only cover the insured for
claims made within the
window of time the insurance
policy is in effect so long as
the claim is made within the
specified time
Occurrence-Based
• Covers anything that happens
within a certain window of
time and will “pay out”
regardless of when the claim
is made to the insurance
company
Educate your client on the type of policy they have

61. Pay Attention to Exclusions
• An insurance contract almost
always carves out exclusions
from coverage.
– intentional acts, such as theft
by employees
– assaults,
– alcohol-related events
• Other exclusions may relate
more specifically to the type of
insurance involved.
– For example, a typical
farmowners policy might not
be adequate to insure against
losses suffered from the
flooding of a nearby creek

62. Know the Type of Coverage
• intended to compensate for losses from causes like fire,
lightning, explosion, windstorm, hail, riot or civil commotion,
aircraft or vehicle, vandalism, theft, sinkhole collapse, and
volcanic action.
Basic
Coverage
• include all of the above and adds additional coverage for
damage from causes like the weight of ice, snow, or sleet,
falling objects and accidental discharges of water.
Broad Form
Coverage
• Includes the same protections in basic and broad coverage
• Also offers open peril coverage under which other causes of
damage are covered unless they are specifically excluded
under the farm policy (e.g., flood loss).
Special
Coverage

63. Types of Insurance
Farmers
Comprehensive
Personal Liability
Policy
Commercial
Insurance Policy
Home Owners/
Renters Insurance
Products Liability
Insurance
Auto Insurance
Cyber Liability
Insurance
Environmental
Insurance
Pollution
Insurance
Crop Insurance
Livestock
Insurance
Equine Insurance
Special Riders (or
Endorsements)
The insurance puzzle

64. Farmers Comprehensive Personal
Liability (“FCPL”) Policy
• A/k/a “Farmowner’s Insurance”
• Most farms use a farmowner’s insurance policy to cover the
ordinary risks of a farming operation.
• This type of policy normally only covers activities ancillary
to farming (i.e., not agri-tourism or cottage food
operations).
• Pay special attention to the exclusions section in this policy
to see what is not covered.
– Sale of processed vegetables or meat products at a farmers’
market or roadside stand
– Injuries to the policyholder or family member
– Property damage by the insured him/herself.

65. Homeowner’s/ Renters Insurance
• Homeowner’s insurance
usually does not cover
business activities.
• Therefore, clients should
consider a commercial policy
if they have a home business
office, cottage food operation,
a rooftop garden, offer in-
home cooking classes, or sell
produce from their home.

66. Commercial Insurance
• A commercial insurance policy or endorsement is
appropriate for operations engaging in business
outside the scope of the basic farmowners’ insurance
policy.
– For example, most farmowners’ policies cover products
liability for the sale of raw food products, whereas the
commercial insurance policy may cover personal injuries
(such as slip and falls and other types of injuries not
related to defective products) resulting from the sale of
processed food products (e.g., slicing vegetables, cutting
meat products, making beef jerky).
• A commercial insurance policy should be purchased if a
business is being run out of a home, has agri-tourism
activities, or engages in on-farm poultry slaughter.

67. Products Liability Policy
• Products liability policies help provide coverage
for liability resulting from an illness or death due
to contaminated food products sold by the
purchaser.
• It is highly suggested that farms involved with the
direct marketing of food products to consumers,
schools or restaurants have products liability
insurance.
• Farms selling raw milk should also consider a
products liability policy.

68. Crop Insurance
• Federal crop insurance is
subsidized by the U.S.
Department of Agriculture
(“USDA”) Risk Management
Agency (“RMA”).
• It protects the producer against
crop losses due to natural
disasters such as drought or
flood.
• It is available for nearly every
type of commodity ranging from
sweet corn to raisins.

69. Livestock Insurance
• There are two types of
livestock insurance:
– RMA reinsured livestock
insurance (similar to the
federal crop insurance
program)
• Natural causes only
– private livestock insurance
• Wider coverage, including theft
• Common with horses

70. Cyber Insurance
• This is a fairly new type of
insurance, relatively speaking, and it
addresses risks associated with
doing business over the Internet (or
e-Commerce).
• Covered risks can include privacy
issues, infringement of intellectual
property (trademark or copyright
infringement), stolen credit card
information (from PayPal, Google
Checkout or other online credit card
processor) or computer viruses.

71. Motor Vehicle Insurance
• Food and agriculture
operations should pay
special attention to their
auto insurance policies if
vehicles are used to
transport goods, livestock
or special equipment.
• A commercial automobile
policy or special rider
might be needed.

72. Special Riders/ Endorsements
• There are many special activities on
agriculture or food operations that
require amendments to the
underlying policies.
• Examples of these special activities
may include agri-tourism/agri-
tainment, petting zoos or other
activities where the public is in
direct contact with animals, equine,
custom farm work, on-farm poultry
slaughter, production of processed
foods, use of ATV’s, and the
transportation of frozen genetics
(e.g., embryos, semen).

73. Umbrella Insurance
• The name “umbrella” improperly infers that
umbrella insurance adds coverage in the “holes”
of existing insurance policies; instead, umbrella
insurance should be viewed as a “top hat.”
– It essentially raises your already existing limits and
existing coverage.
– For example, if you have a $1 million farmowner’s
insurance policy with the $2 million umbrella, the
umbrella policy would protect the farm against a $2
million court judgment.
• Umbrella insurance does not “fill in holes” in your
existing insurance policies – it simply increases
the limits.

74. How Much Insurance Coverage Does a
Farm or Food Entrepreneur Need?
• Depends on budget and risk appetite
• Most operations should have at least $1 million
– Rule of thumb: should be more than the amount of
assets that you have
• Depends on
– Type of operation
– Assets to protect
– Other risk management techniques

75. Oh, P.S. – I Just Wrote a Book
Cari B. Rincker & Patrick B.
Dillon, “Field Manual: Legal
Guide for New York Farmers &
Food Entrepreneurs” (2013)
Available at
http://www.amazon.com/Field
-Manual-Legal-Farmers-
Entrepreneurs/dp/1484965191
Also available on Kindle

76. Please Stay in Touch
• Send Me Snail Mail: 535 Fifth Avenue, 4th Floor,
New York, NY 10017
• Call Me: (212) 427-2049 (office)
• Email Me: cari@rinckerlaw.com
• Visit My Website: www.rinckerlaw.com
• Read My Food & Ag Law Blog: www.rinckerlaw.com/blog
• Tweet Me: @CariRincker @RinckerLaw
• Facebook Me: www.facebook.com/rinckerlaw
• Link to Me: http://www.linkedin.com/in/caririncker
• Skype Me: Cari.Rincker