North Dakota Corporate Farming Law: Can an LLC Own Farmland? Family Farm LLCs Capped at 15 Members, 65% Farm Income and an Apr 15 Report
North Dakota Corporate Farming Law: Can an LLC Own Farmland? Family Farm LLCs Capped at 15 Members, 65% Farm Income and an Apr 15 Report
If you want an LLC to hold farmland or run a farm in North Dakota, the first question is whether state law allows it. Under north dakota corporate farming law, corporations and LLCs are generally kept off the land. North Dakota Century Code Chapter 10-06.1 prohibits them from owning or leasing farmland or ranchland and from farming or ranching, except as the chapter allows. The exceptions are narrow. They come with membership limits, income tests, and an annual report that most business LLCs never file.
This guide covers the general rule, the exception for family farming LLCs, the separate exception for authorized livestock farms, the April 15 report, and the penalties for getting it wrong. Use it to plan, then confirm the details with an agricultural attorney before you act.
The General Rule: Corporations and LLCs Cannot Own or Lease Farmland
NDCC 10-06.1-02 says a corporation or LLC may not own or lease farmland or ranchland, and it may not farm or ranch unless the chapter specifically permits it. The rule applies to any LLC, including one formed for an unrelated business. Filing articles of organization with the Secretary of State creates the entity, but it does not give that entity the right to buy or lease cropland.
The prohibition is aimed at entities. Individuals are not governed by this chapter, and the exceptions below describe the only circumstances in which a corporation or LLC may hold or farm land. If your plan depends on an LLC, you have to fit it inside one of those exceptions.
The Exception for Farming or Ranching LLCs
NDCC 10-06.1-12 allows a farming or ranching corporation or LLC if it meets every condition in the statute. Think of these as a checklist. If the entity misses one item, the exception does not apply.
Membership is capped at 15 related owners
A farming or ranching LLC may have no more than 15 shareholders or members. Each member must be related to every other member through one of the listed kinship relationships: parent, child, grandparent, sibling, uncle, aunt, nephew, niece, great-grandparent, great-grandchild, first or second cousin, or a spouse of any of these people.
The test is pairwise. Every owner has to be related to every other owner within that list. A family LLC cannot be stretched by adding one distant relative who is connected to only some of the other owners. Before you admit a new member, map out the relationship between that person and each existing owner.
Who may be a member
Members must be individuals, or trusts or estates held for the benefit of related persons. Every member must be a U.S. citizen or a permanent resident. An outside investor, a non-related business entity, or a person who is neither a citizen nor a permanent resident does not fit the statute.
Management must come from active operators
Officers, directors, governors and managers must be members who are actively engaged in operating the farm or ranch. A family member who owns a share but does not work the operation cannot serve as a manager under this test. Decide who runs the business before you draft the operating agreement.
At least 65% of income must come from farming
At least 65% of gross income, measured as a five-year average, must come from farming or ranching. Nonfarm rent, royalties, dividends, interest and annuities may make up no more than 20%. This is where many family LLCs run into trouble. An entity that collects rent from a building, earns dividends on surplus cash, or holds a royalty interest can cross the 20% line even when the crop and livestock sales are strong.
The entity must own or lease farmland
The LLC has to own or lease farmland. An entity that holds equipment, cash or investments but no land does not qualify.
Authorized Livestock Farm LLCs Under NDCC 10-06.1-12.2
A separate exception covers authorized livestock farms. It is narrower in what it allows, and it has a smaller membership cap and a tight land limit. The table below compares the two exceptions on the points covered by the statute.
| Requirement | Farming or ranching LLC (10-06.1-12) | Authorized livestock farm LLC (10-06.1-12.2) |
|---|---|---|
| Permitted operations | Farming or ranching | Backgrounding or finishing, poultry, dairy or swine only |
| Member limit | 15 shareholders or members, all related | 10 members |
| Land limit | Must own or lease farmland | 160 acres maximum, with no crops and no grazing |
| Aggregate limit | Not addressed in this summary | 640 acres across related entities |
| Income test | At least 65% farm income, nonfarm income at most 20% | Not addressed in this summary |
| Partnership participation | Not addressed in this summary | Cannot be a partner in a farming partnership |
The livestock exception is limited to backgrounding or finishing, poultry, dairy and swine. Acreage is capped at 160 acres with no crops and no grazing, and related entities share a 640-acre aggregate limit. A pasture-based operation that depends on grazing does not fit, because grazing is excluded. Confirm the operation type and acreage with counsel before you rely on this exception.
Other Exceptions in Chapter 10-06.1
The chapter also contains exceptions that cover specific uses and organizations rather than typical family farms. NDCC 10-06.1-07 addresses industrial and business land. The chapter also allows surface coal mining, cooperatives in which 75% of the members are farmers, and certain nonprofit organizations and trusts that lease land to farmers.
If one of these exceptions looks like it fits your situation, get a written opinion from counsel before you structure anything around it. These exceptions are not a shortcut for a family farm that cannot meet the 15-member or 65% tests.
The April 15 Report and Filing Fees
A farming or ranching LLC and an authorized livestock farm LLC file the same basic paperwork as a business LLC, with two important differences. The first is an initial report filed with the articles. The second is a different annual report due date. Business LLCs file by November 15. Farming and ranching LLCs and authorized livestock farm LLCs file by April 15.
The initial report and each annual report must list the members, their interests, and the land held by section, township, range and county. Because the land description is part of the filing, collect the legal descriptions for every parcel before you file the articles.
| Item | Amount | When it applies |
|---|---|---|
| Articles of Organization | $135 | At formation, filed through FirstStop with the initial report |
| Limited Liability Company Annual Report | $50 | Due April 15 every year for farming and ranching LLCs |
| Late fee | $50 | Added after the statutory due date under NDCC 10-32.1-92 |
| Reinstatement fee | $135 | After the LLC has been terminated or a foreign LLC's certificate of authority revoked |
The Secretary of State does not publish a guaranteed processing time, and it does not list an expedited filing option for LLCs. Call Business Services at (701) 328-2900 for current timing before you plan a closing or a crop-year deadline around the filing.
Penalties and Enforcement
Willfully failing to file the required report, or filing a false report, is a class A misdemeanor. The Office of State Tax Commissioner and the Attorney General run random compliance checks. The Attorney General can sue to force divestiture, which means the entity has to give up land it is not permitted to hold. Residents of the county where the land is located and other farm entities can also sue. These penalties are set out in NDCC 10-06.1-24 and 10-06.1-25.
Compliance is not a one-time event. A membership change, a new parcel, or a shift in income mix can put an entity out of compliance even though the formation documents were correct when filed.
Related Rules to Check Before You Form
Corporate farming is not the only set of rules that applies to a farm entity. Keep these items on your checklist.
- Alien land limits. Chapter 47-10.1 limits land ownership by aliens. It is separate from Chapter 10-06.1, so passing the corporate farming tests does not satisfy the alien land rules.
- Name. Under NDCC 10-32.1-11, the name must include the words limited liability company or the abbreviation L.L.C. or LLC, and it must be distinguishable from other registered names. A name reservation costs $10 and lasts 12 months.
- Registered agent. The LLC must maintain a North Dakota registered agent with a physical address in the state. The business cannot serve as its own agent, and you must get the agent's approval before naming them. A statement of change of address or agent costs $10.
- State taxes. North Dakota has no franchise tax. An LLC taxed as a partnership or disregarded entity passes income to its owners, who pay individual income tax at 0%, 1.95% or 2.50% depending on bracket. An LLC that elects C corporation treatment pays corporate income tax at 1.41%, 3.55% and 4.31% by bracket.
- Workers' compensation. Workers' compensation in North Dakota is a state monopoly administered by WSI. Farm labor is exempt from mandatory WSI coverage and North Dakota withholding. Confirm how these exemptions apply to your operation with WSI and the Office of State Tax Commissioner.
- Licensing. North Dakota has no general statewide business license. Forming an entity is a filing, not a license. Some activities still require a license from the agency that oversees them, so confirm any activity-specific requirement with that agency.
Step-by-Step: Forming a Farm LLC in North Dakota
- Test the operation against the statute. Confirm the 15-member cap, the kinship rule, citizenship or permanent residency for every member, the active management requirement, and the 65% and 20% income tests. If you want the livestock exception, confirm the operation type and the 160-acre limit.
- Confirm the land. Make sure the entity will own or lease farmland. Gather the section, township, range and county for each parcel.
- Check the name. Search the business records at firststop.sos.nd.gov/search/business. Reserve the name for $10 if you need time to finish paperwork.
- Appoint a registered agent. Choose a North Dakota agent with a physical address in the state, and get the agent's approval first.
- File the articles and initial report. File through the FirstStop portal at firststop.sos.nd.gov for $135.
- Calendar the April 15 annual report. The annual report costs $50 and is due April 15 each year, not November 15.
- Keep the records current. Track membership changes, land changes, and the five-year income mix so you can prove compliance if the Tax Commissioner, the Attorney General or a court asks.
When to Talk to an Agricultural Attorney
Corporate farming rules turn on specific facts: who the members are, how they are related, how they earn income, and which parcels the entity holds. A small mistake in any one of those areas can disqualify the entity. Before you form a farm LLC, transfer land into one, or add a member, talk with a North Dakota agricultural attorney. Ask a CPA to review the tax classification and the income test, since the 65% and 20% tests depend on how gross income is recorded.
Disclaimer: This article is informational content, not legal or tax advice. It summarizes North Dakota law as of its publication date, and statutes can change. Do not rely on it as a substitute for advice from a qualified attorney or CPA who knows your facts.
Official North Dakota Resources
- North Dakota Secretary of State: https://www.sos.nd.gov/
- FirstStop filing portal: https://firststop.sos.nd.gov/
- Business name search: https://firststop.sos.nd.gov/search/business
- Office of State Tax Commissioner: https://www.tax.nd.gov/
- North Dakota Small Business Development Centers, hosted by the University of North Dakota: https://und.edu/ndsbdc/index.html