North Dakota Loosens Corporate Farming Restrictions

Clients often contact us seeking to raise capital for or invest in North Dakota farm and ranch land. North Dakota’s previously strict corporate farming law made this a complicated process. Things have changed. In the recently completed 2023 legislative session, North Dakota lawmakers added a substantial new exemption for livestock operations, allowing significant new direct capital investment into the state.

Background

North Dakota’s corporate farming law, found in North Dakota Century Code 10-06.1 (the Act), was originally passed by initiated ballot measure in June of 1932. The proponents of the Act promoted it as a tool to prevent large out-of-state corporations from driving family farmers out by buying large swaths of farmland. This problem largely arose during the Great Depression and Dust Bowl, which drove many family farmers into bankruptcy and foreclosure. Except as carved out by the new amendments, the Act prohibits corporations from “farming or ranching,” the definition of which includes “raising or producing livestock.”

The original Act was repealed in 1981 and replaced with a new law that allowed corporate ownership of farms in limited circumstances. Those circumstances include ownership by closely related family members and cooperatives; the law was amended again in 2019 to include relatives as distant as second cousins. Partnerships are not prohibited from owning farmland by the Act. However, partnerships may only own farmland if the partners are themselves eligible landowners under the Act.

Popular support for the Act has stayed strong in North Dakota, as shown by an overwhelming rejection to repealing the Act by initiated measure. However, interest in reforming the Act has increased in recent years, and the legislature over time has expanded it to include more exceptions.

New Opportunity

A broad range of stakeholders came together in the 2023 Legislative Session to pass House Bill 1371 into law with overwhelming support. The law went into effect immediately after it was signed by Governor Doug Burgum. It allows for corporations and limited liability companies to own livestock production facilities so long as they comply with the following requirements:

• No more than 10 total members or shareholders.
• 51 percent or more ownership by active farmers or ranchers in an LLC or 75 percent or more ownership by active farmers or ranchers in a corporation.
• 100 percent owned by U.S. citizens, resident aliens or otherwise authorized individuals under N.D.C.C. 47-10.1-02.
• No more than 160 acres of farmland or ranchland.
• Managers actively engaged in the operation.
• Limitations on income earned from non-farm and non-livestock operations.
• May not engage in the production of crops or grazing of livestock.
• Construction must commence within one year of acquiring the farmland and be fully operational within six years.
• Follow annual reporting requirements to the state.

This expansion greatly improves options for farmers, livestock operators and investors to develop livestock operations in North Dakota. It signals a broader investment orientation in North Dakota lawmakers, demonstrating their growing appetite for investment in agricultural products and facilities. Investors and livestock operators that did not previously look to locate in North Dakota can reconsider their investment options.