This section provides an overview of the limited liability company (LLC) entity. This section offers farmers a basic understanding of what it means to run a farm operation as an LLC. The following section, Going Deeper into LLCs, gives you some tools to help you navigate the process of creating and operating an LLC. It includes a checklist for creating an LLC, two sample operating agreements and a checklist for preparing an operating agreement.

A fictitious story about three sisters who create Sun Sisters Farm, LLC is woven throughout this chapter to help explain some of the more complex legal scenarios and give you a better sense of some scenarios you should consider when forming and operating an LLC.

At-A-Glance Chart: LLC
General ConceptTerminology
LLC Specific TechnologyName"Farm Name, LLC"
Owners/investors are called"Members"
Persons who make management decisions are called“Managers” (if manager-managed); “Members” (if member-managed)
Creation document is called"Articles of organization"
Organizing document is called"Operating agreement"
An owner's investment is called"Capital contribution"
An ownership share is called"Percentage interest"
A payment of the company's profits to the owners is calledDistribution
Is there personal liability?Limited to a member's capital contribution if LLC integrity is maintained
How many participants can you have?One or more; can be other business entities or trusts unless elect S corporation tax status.
Are annual meetings required?Not required, unless elect S corporation tax status
Are different member classes allowed?Allowed, unless elect S corporation tax status
In an EIN necessary?Required, unless you're a single-member LLC with no employees
Who files the tax return?Pass-through is default (members file and report LLC’s income on their tax returns); option to elect C corporation (entity files and reports LLC’s income on Form 1120) or S corporation federal tax status.
LLC with S Corporation Federal Tax StatusHow many participants can you have?Maximum 100 people. Cannot be other business entities or trusts. All must be U.S. citizens.
Are annual meetings required?Required
Are different member classes allowed?Not allowed
Is an EIN necessary?Required
Who files the tax return?Pass-through; but, entity must file informational Form 1120S with the IRS, distribute Schedule K-1 to each member and file all Schedule K-1s with the IRS. Each member must report their share of business’s income on their individual tax return.