Many of the farm families I meet with have failed to address this pressing issue: What happens when you and your business partner don’t agree? What happens when there is a deadlock?

Unfortunately, many farms have business agreements that would result in the destruction of the farm if a deadlock were to occur. These agreements either require an unrealistic buyout by one member or require that the limited liability company be sold in its entirety. To the surprise of many of my farmers, I even see a forced sale of the limited liability company upon a member’s death, disability, bankruptcy, resignation or dissociation. Although these options may work well in other professions because they allow the remaining member to essentially “cash out” and receive their fair share of the company, the results are devastating to most family farms.

So how do you avoid destroying the farm in the event of a deadlock?

• Ensure you have a well-thought-out operating agreement. Your operating agreement should have terms to discuss what happens when a dispute occurs and how those disputes are resolved. Further, it should define which disputes can be solved internally and which disputes will require outside intervention. For example, it may be appropriate to settle a dispute over when to sell the corn simply by flipping a coin. However, a dispute over whether to sell a quarter may require the use of an independent mediator or outside party. Defining which disputes require a “coin flip” versus a mediator before the dispute arises is going to save your farm time, headaches and expensive litigation.

• Put a buy-sell agreement into place that determines the steps and procedures of how, when and if ownership interests in the company may be sold, transferred or inherited. Your buy-sell agreement should discuss when new members may join the business and how. It should discuss sales to outside parties. It should also address what happens when a member passes away or goes through a bankruptcy or divorce. You likely do not want the ownership to pass to an outside party.

• Decide who does what. If you are farming with another family member, but working on different parts of the operation (Dave does crops, Mike does the cow-calf operation), simply defining who has the power to undertake certain actions on behalf of the company can also prevent a deadlock. If Dave works the majority of his time on the crops, then maybe the final decisions regarding the crops should be his to make in the event of a disagreement. Similarly, if Mike is running the cattle operation, then if there is a disagreement regarding the cattle, Mike should make the final decision.

By working with hundreds of farmers in our five offices across the state, we have seen firsthand what a lack of proper planning can do to a family farm. Forced sales are almost never the answer, and we work with you to develop realistic options that keep your family close and your farm protected. There is no one-size-fits-all solution. However, working with a qualified attorney now to develop a plan before a deadlock arises can prevent years of heartache, chaos and expensive litigation.

Harris is the head of the Estate Planning and Probate Practice Group and the Business and Corporate Law Practice Group at Swier Law Firm, Sioux Falls, S.D. Contact her at 605-275-5669 or at [email protected]. Go to swierlaw.com.