Don’t Neglect Your Legal Maintenance
Originally published by Michigan Farm News on February 10, 2014; republished with permission.
Many farmers spend a portion of the winter months doing maintenance on their farm's machinery and equipment. Now is also a good time to do some maintenance on your farm's legal matters.
If your farm is comprised of one or more legal entities, whether the entities are corporations, limited liability companies, or limited partnerships, maintaining proper entity records is an important part of maintaining the limited liability shield that makes these entities especially beneficial. In fact, the Michigan Business Corporation Act requires annual meetings of the shareholders of a corporation. While the Michigan Limited Liability Company Act does not require annual meetings of the members or managers of a limited liability company, it is still important to maintain proper entity records by preparing member or manager consent resolutions approving significant transactions and decisions affecting an LLC. At a minimum, you should have consent resolutions for your entities that approve of any real estate acquisitions, machinery and equipment purchases, salaries or bonuses paid to owners and employees, financing transactions, leases and other major transactions.
In addition to maintaining proper entity records, if your entity has a buy-sell agreement in place with an agreed upon or stipulated value concept, you should make sure that the value for the entity is current. The winter months are an especially good time to review these values because year-end financial information is readily available and you are undoubtedly preparing information for your accountant to use in filing your income tax returns. You should also review any life insurance policies related to a buy-sell agreement to make sure the life insurance policy has the proper owner and beneficiary designations.
You should also make sure that the appropriate farm entity is the owner of any trucks, tractors, machinery, and equipment used on the farm. For titled vehicles, make sure that you have properly changed all titles to reflect ownership by the entity instead of owning such vehicles individually. This also means that you may need to update your DOT number to reflect the proper ownership of your trucks. For machinery and equipment without a title, ownership may be transferred to the entity by utilizing a bill of sale.
You should also check your property and casualty insurance policies to make sure that any entities related to your farm are listed as either the primary insured party or as an additional insured party. If you have transferred property to a trust agreement, make sure that the trust is listed as an additional insured on your insurance policies. Prior to transferring real estate that is subject to a mortgage or any trucks, tractors, machinery or other equipment that is subject to a security interest, make sure that you talk to your lender first so that a transfer to an entity does not inadvertently create a default under your loan agreements.
So before warm weather arrives and you get busy with field work, spend some time doing maintenance on your farm's legal matters. It is time well spent.