Business Entities- Update from Iowa State University Extension

A recent update by Kelvin Leibold (“Business Entities“), a farm management specialist at Iowa State University (ISU) Extension, explained that, “The state of Iowa allows for several different forms of business. The choice of a business entity affects liability, taxation, capitalization, decision making, agricultural government payments, gifting or transfer options. Such a decision requires much thought and advice from professionals such as attorneys and accountants when deciding on which business structure is appropriate. This publication is not intended to provide legal advice but to familiarize you with some of the terms and concepts.

“The business structures allowed in Iowa include:

  • Sole Proprietorship
  • General Partnership (Iowa Code chapter 486A)
  • Limited Partnership [Domestic or Foreign] (Iowa Code chapter 488)
  • Limited Liability Partnership [Domestic or Foreign] (Iowa Code chapter 486A)
  • For Profit Corporation [Domestic or Foreign] (Iowa Code chapter 490)
  • Nonprofit Corporation [Domestic or Foreign] (Iowa Code chapter 504)
  • Professional Corporation [Domestic or Foreign] (Iowa Code chapter 496C)
  • Limited Liability Company [Domestic or Foreign]”

The ISU update highlighted several factors to consider when choosing a business entity, and noted in part that:


“Individual liability for debts and torts varies based on the business structure. Often preference will be given to a business structure that limits the individual’s financial liability to the equity contributed and shields the other personal assets from possible business exposure.”

Decision Making

“The business structure can also impact the amount of decision making and control that other investors have. Certain classes of shareholders may or may not have voting rights. Some may have buy-sell agreements or other restrictions on transfer of shares or units. The structure also impacts the complexity of the organization, record keeping, tax reporting, and related costs.”

Ag Program Payments

“In the past, USDA farm program payments have been a substantial part of farm profits. Eligibility and payment limits can be impacted by the type of business structure. The USDA rules have changed over time and continue to be a moving target. Currently the programs look at payments at the business level and at the individual level.”

Also in his ISU Extension update, Mr. Leibold indicated that, “The type of business structure may impact USDA Farm Service Agency programs as well as other government programs. Rules change over time, to find out the current implications, visit the local FSA office to understand liability issues beyond what the entity may provide and reasons that you may still have liability issues.

“When putting together a business structure think about how the business will deal with gifts, transfers, sales, buy-sell agreements, financial stress, death, termination, or transfer to the next generation.

“There are other business arrangements such as labor sharing agreements, machinery sharing agreements, livestock production contracts, and strategic alliances that may be useful.”

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Stamp Farms Co-Defendants Sentenced

DTN writer Todd Neeley reported earlier this week that, “Two of three men indicted on 14 counts of conspiracy to commit bank fraud and making false statements to attain loans and crop insurance for Decatur, Michigan-based Stamp Farms LLC, have been sentenced to prison time. They have been ordered to pay hundreds of thousands of dollars in restitution as a result of reaching plea agreements.

“According to court documents filed in the U.S. District Court for the District of Western Michigan, James Leonard Becraft, Jr. pleaded guilty to conspiracy to make false statements on crop insurance forms. On Feb. 12, he was sentenced to a year in prison, a two-year supervised release and ordered to pay $648,188 in restitution to the Risk Management Agency in Kansas City, Missouri.

“Douglas Edward Diekman pleaded guilty to conspiracy to make false statements on crop insurance forms. On Dec. 20, 2018, Diekman was sentenced to 13 months in prison, a two-year supervised release and ordered to pay $488,432 in restitution — $409,403 to RMA and $79,029 to the Farm Service Agency in Kansas City.”

The DTN article stated that, “On Dec. 13, 2017, a grand jury handed down an indictment of Becraft, Diekman and Michael Stamp in connection with the Stamp Farms Chapter 11 bankruptcy filed in November 2012. The bank found Stamp Farms in noncompliance on loan agreements, including working capital and other ratios. Michael Stamp is the former owner of the farm. Stamp’s case has yet to be resolved, as a hearing was scheduled for Tuesday in Michigan.

“Stamp and Becraft originally pleaded not guilty in January 2018, according to court records, after being arrested by Internal Revenue Service agents on Jan. 18, 2018. According to the indictment, the losses alleged in the fraud total about $60.5 million.

“Becraft agreed to cooperate with federal authorities on the investigation into Stamp Farms, as part of the plea agreement.”

Mr. Neeley added that, “The Stamp Farms bankruptcy case left southwestern Michigan landowners and creditors jolted by what legal experts believe was, at the time, the largest grain farm bankruptcy in U.S. history.”

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Supreme Court Agrees to Hear Clean Water Act Case

Timothy Cama reported yesterday at The Hill Online that, “The Supreme Court agreed Tuesday to hear a major dispute with potentially far-reaching implications for how the federal government protects waterways from pollution.

“The case, County of Maui v. Hawaii Wildlife Fund, challenges an appeals court’s ruling that pollution discharged into groundwater that later flows into a navigable waterway can constitute a violation of the Clean Water Act.

“Congress traditionally leaves regulation of navigable waterways up to the federal government, while groundwater is regulated only by states. But the 9th U.S. Circuit Court of Appeals last year upheld the Environmental Protection Agency’s (EPA) finding that pollution discharged from Maui County municipal wastewater wells into groundwater, which later went into the Pacific Ocean, violated the federal law.”

The Hill article explained that, “Kevin Minoli, a former general counsel for the EPA and now an attorney at Alston & Bird’s environmental practice, said the Maui appeals court case and a similar one — Kinder Morgan Energy Partners LP v. Upstate Forever — were landmark rulings for water regulation.

“‘These two cases significantly expand EPA’s decades-long understanding that a Clean Water Act permit is only required when a discharge is into groundwater that has a direct hydrologic connection to a surface water,’ he said in a Tuesday statement.

“‘By holding that permits are required whenever any amount of the discharge reaches the surface water in any way and at any point in time, the two decisions have unearthed incredible uncertainty for those who are trying to understand and comply with the law.'”

Mr. Cama added that, “The controversy is separate from the ongoing debate over the EPA’s Waters of the United States rule, which determines the waterways that are subject to federal regulation. The Trump administration is currently working to greatly restrict which waterways, like wetlands and tributaries, are within federal jurisdiction.

“In asking the high court to hear the case last year, attorneys for Maui County called the 9th Circuit ruling a ‘radical expansion‘ of the Clean Water Act.”

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Sales of Mortgage-Servicing Rights Jumped in 2018

Wall Street Journal writer Ben Eisen reported last week that, “The mortgage-market slowdown is stirring up interest in a humdrum segment of American home lending: the rights to the arcane task of handling monthly payments.

Sales of so-called mortgage-servicing rights jumped 14% in 2018 from a year earlier, according to industry research group Inside Mortgage Finance, to more than $600 billion of loans backed by Fannie Mae ,Freddie Mac and Ginnie Mae. In the final three months of 2018, the servicing changed hands on loans worth $183 billion, up 27% from the previous year.

Mortgage servicers, in addition to collecting a borrower’s installment and passing it on to the loan owner, take care of duties like ensuring taxes and insurance are paid. If the borrower defaults, the servicer is the first to jump into action. The company that services a mortgage used to be the same as the one that made the original loan, but in recent decades those two crucial housing market functions have separated.”

The Journal article noted that, “The increase in servicing transfers is the latest ripple effect from a slowdown in the housing market, which has forced lenders to slim down, consolidate or close up shop.

“Many of the sellers are independent mortgage lenders that don’t have deposits to fund themselves or other lines of business that can help them withstand a downturn. Stronger players—both banks and nonbanks—have been picking up servicing rights from weaker lenders that need to raise cash.

“The industry shakeout stems from a sharp decline in refinancing activity as rates have risen and a drop-off in new purchases.”

Mr. Eisen added that, “Lenders don’t need a borrower’s consent to sell a loan or servicing right, and the terms of the loan don’t change when they’re transferred. The risk for homeowners is that they end up with a servicer they don’t like or trust—and didn’t sign up to work with when they took out the loan.”

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Swine Feedlot Proposal Draws Opposition in Minnesota

Jennifer Bjorhus reported last week at the Minneapolis Star-Tribune Online that, “A Fillmore County farmer who sought to build the county’s largest animal feedlot has withdrawn his permit application in the face of sustained local opposition, marking the end of the road for the proposed Catalpa Ag hog farm.

“State pollution officials said Monday that Al Hein informed them of his decision via e-mail, and that it terminates his application.

“Hein, the majority holder in Catalpa Ag, wanted to build a piglet operation with nearly 5,000 pigs on his farm near Mabel, Minn., in southeastern Minnesota. The operation would have been managed by Iowa-based Waukon Feed Ranch.”

The Star-Tribune article noted that, “The feedlot ignited unusual local alarm, drawing large crowds at two informational meetings held by the Minnesota Pollution Control Agency (MPCA) and a record number of comments during the agency’s public-comment period. Area residents and others expressed concern that the 7.3 million gallons of liquid manure the pigs would produce each year would threaten their groundwater. They pressed the MPCA to require a full environmental review of the proposal and said that southeastern Minnesota, with its porous karst geography, was the wrong place for the large operation.

“Manure is a source of nitrate, a form of chemical salt that can cause health problems in drinking water, and an estimated 15 percent of the private wells in Fillmore County exceed the safe drinking water standard for nitrate.

“In December, the MPCA took the rare step of denying Hein’s application for a general permit, citing concerns that the karst geology was too sensitive to contamination.”

Ms. Bjorhus pointed out that, “Hein applied again, this time for an individual permit, a customized document that would have likely included additional protections for water resources. Most of the state’s 1,300 state-permitted feedlots are covered under general permits, according to the MPCA.

“Hein did not respond Monday to a request for comment, and MPCA officials declined to discuss what prompted his decision.”

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60-Day Comment Period for WOTUS Rule Launched

DTN writer Todd Neeley reported yesterday that, “The 60-day public comment period for the newly proposed waters of the United States, or WOTUS, rule launched Thursday with the EPA and U.S. Army Corps of Engineers publishing the rule in the Federal Register.

“The new rule moves forward while the 2015 rule under the Obama administration remains in legal limbo and essentially in effect in 22 states.

“EPA and the Army Corps are on track to finalize the new rule by September, which is likely to trigger a new round of legal challenges.”

Mr. Neeley explained that, “The publication of the new rule already has drawn praise and outrage from a number of interest groups. The public comment period closes April 15.

“In a statement to DTN, American Farm Bureau Federation President Zippy Duvall said the group supports the proposal.

“‘Today’s release of a new draft Clean Water Rule is a major step toward fair and understandable water regulation on America’s farms and ranches and other working lands,’ Duvall said. ‘We haven’t yet examined every word of today’s proposal, but even a quick look shows many of the previous rule’s worst problems are on their way out.'”

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Bayer’s Monsanto, Sued by Thousands, Faces New Kind of Claim

Bloomberg writers Lydia Mulvany and Deena Shanker reported yesterday that, “Monsanto Co. has been sued by thousands of farmers and others who blame their cancers on its massively popular Roundup weedkiller. Now Germany’s Bayer AG, which bought the agriculture giant last year, faces a claim that it deceived home gardeners about Roundup’s impact on their gut bacteria and their health.

“The lawsuit, filed Wednesday in federal court in Kansas City, Missouri, claims that labels on products such as Roundup’s Weed & Grass Killer falsely assured consumers that they target an enzyme not found ‘in people or pets.’

“According to the suit — which names three consumers as plaintiffs seeking unspecified monetary damages and class action status — Roundup’s active ingredient glyphosate attacks an enzyme also found in the beneficial intestinal bacteria of humans and some animals.”

The Bloomberg writers noted that, “The Roundup products at issue are distributed by Scotts Miracle-Gro, which is also named as a defendant. Two other suits, in Wisconsin and Washington, D.C., are based on similar arguments but aren’t class actions.

“Daniel Childs, a spokesman for Bayer, said in an emailed statement that the lawsuit is without merit and that the company ‘looks forward to defending the case on the merits.’ A similar suit filed by the same lawyers in Wisconsin was denied class certification because they failed to prove the intended class members had even seen the labels, Bayer said.”

Yesterday’s article also stated that, “In August, a jury in a California state court awarded $289 million in damages, later reduced to $78 million, to Dewayne Lee Johnson, a former school groundskeeper who claimed Roundup significantly contributed to his terminal non-Hodgkin lymphoma. The company’s share price plunged, erasing $16 billion in market value in a week.

Bayer has said that U.S. courts will ultimately find that glyphosate isn’t responsible for Johnson’s cancer. Monsanto has said for decades that glyphosate is safe.”

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Fed Governor Calls for Regulators to ‘Develop and Refine’ Supervision of Community Banks

Earlier this week, Wall Street Journal writer Lalita Clozel reported that, “Federal Reserve governor Michelle Bowman called Monday for regulators to ‘develop and refine’ how they supervise community banks ‘to fit the smaller size and less-complex risk profiles of these banks.’

‘I witnessed firsthand how community banks were significantly affected by the global financial crisis, a crisis they did not cause,’ said Ms. Bowman, a former small-town banker and regulator from Kansas, in her first speech since joining the Fed’s powerful board of governors in November.

“Congress passed a law in 2015 requiring that the seven-seat board have at least one member with ‘demonstrated primary experience working in or supervising community banks having less than $10 billion in total assets.'”

The Journal article stated that, “It is ‘crucial,’ she said, to ‘balance effective regulation and supervision to ensure the safety and soundness of community banks while also ensuring that undue burden does not constrain the capacity of these institutions to support the communities they serve.’

“Speaking Monday at an American Bankers Association conference in San Diego, Ms. Bowman enumerated continuing efforts backed by the Fed and other regulators to ease capital rules, examination and other compliance requirements for smaller banks.

“Ms. Bowman highlighted some risks facing community banks, including concentrations in agricultural credit and credit-risk-prone activities.”

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Next Wave of ‘Unicorn’ Start-Ups Looking Very Different

New York Times writer Erin Griffith reported earlier this week that, “Technology start-ups worth $1 billion, once as rare as unicorns, are now plentiful enough and old enough that there’s a new generation behind them — one that looks very different.

“Silicon Valley’s current crop of highly valued tech start-ups, which include now-household names like Uber and Airbnb, all benefited from the spread of smartphones and cheap cloud computing. Many of these companies built global empires by simply taking existing businesses — like taxis, food delivery and hotels — and making them mobile. Some of the start-ups became giants: Uber, for instance, may reach a $120 billion valuation this year.

“But as those companies have matured and prepare to go public, the easy opportunities for disrupting old-line industries are drying up. Now, many of the up-and-coming start-ups that may become the next unicorns have names like Benchling and Blend. And they largely focus on software for specific industries like farms, banks and life sciences companies.”

The Times article noted that, “Software start-ups may seem boring. But many of them are growing fast because industries like agriculture require more software tools as they adapt to the tech era, said Jason Green, an investor at Emergence, a venture capital firm that invests in cloud software companies.”

This week’s article also pointed out that, “Other fast-growing start-ups that fit this description include Farmers Business Network, which was founded in 2014 by Charles Baron, a former Google program manager, and Amol Deshpande, a serial entrepreneur and venture capitalist. The company charges farmers $700 a year to share and analyze data about their farms, buy supplies and sell crops. Mr. Baron said the start-up counts 7,700 farms as customers and has raised nearly $200 million in funding.

A company like Farmers Business Network wouldn’t have been possible 10 years ago, before the proliferation of cloud computing and the ‘digitization’ of farming processes, Mr. Baron added. Now, farms produce a lot of data, which Farmers Business Network is helping them to process and use to make decisions.

‘Agriculture is going through a digital revolution,’ he said.”

The Times article added that, “CB Insights identified five companies in India, four in China, and three in Latin America as possible candidates to reach $1 billion in valuation. They ranged from CargoX, a Brazilian start-up using technology to make trucking companies more efficient, to Deputy, an Australian company that provides tools to businesses to manage their hourly workers.”

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Bipartisan Group of Senators Introduce Startup Act

A news release today from Sen. Jerry Moran (R., Kans.) stated that, “U.S. Senators [Moran], Mark Warner (D-Va.), Roy Blunt (R-Mo.) and Amy Klobuchar (D-Minn.) today reintroduced the Startup Actbipartisan, cutting-edge legislation to encourage job creation, grow entrepreneurial activity, increase innovation and advance economic development.

“The Startup Act would accelerate the commercialization of university research and creative inquiry that can lead to new ventures, review and improve the regulatory processes at the federal, state and local levels, and modernize a critical Economic Development Administration (EDA) program to spur economic growth and promote innovation. The widely-supported legislation also creates both entrepreneur and STEM visas for highly-educated individuals so they can remain in the United States legally to promote new ideas, fuel economic opportunity and create good-paying American jobs.

“‘America continues to fall behind in new business development and struggles to retain top talent that could grow our U.S. economy,’ said Sen. Moran. ‘With a renewed sense of urgency, Congress must prioritize policies that will help recruit and retain highly-skilled students and innovators, bolster a pro-growth environment and enable entrepreneurs to transform ideas and research into companies and products – creating meaningful, good-paying jobs for Americans in the process. Thank you to Senators Mark Warner, Roy Blunt and Amy Klobuchar for continuing to prioritize this important legislation to help make certain America remains the best place in the world to bring an idea to market and grow a business.'”

The release added that, “Data shows that international students studying in the U.S. on temporary visas accounted for nearly two-fifths of all Ph.D.s in STEM fields – that number has doubled over the past three decades. Further, international doctoral students were significantly more likely than domestic students to major and earn degrees in STEM disciplines in the U.S.”

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