I can describe the specifics about how we went about forming our Farmstead Cooperative and then separately worked out a method that would allow some folks to become members of that FC. Our “one way” is probably unique to our collective situation (and therefore one of many ways to do it). The specifics described here are likely unique to our group. Another group may decide to organize in a different manner, as they should, according to their own collective requirements and goals.
After we had written (with the help of a lawyer) an LLC Agreement suitable for registration in the state of Maine that codified how we all thought the Farmstead Cooperative should be managed, we also created two more documents. The additional agreements are based on our discussions about how best to introduce a New Member to this Farmstead Cooperative, and the means by which these specific New Members could purchase 100% of the shares of the Farmstead Cooperative over time:
- A Lease Agreement for Two Years providing access to the farmhouse and other assets of the FC;
- A Purchase and Sale Agreement for the balance of the outstanding shares in the LLC owned by the original Members.
After initially agreeing in principle together to create a Farmstead Cooperative, and to create a pathway towards ownership transfer, these are the documents that satisfied our agreement. We signed an initial working agreement document in May of 2014 that spelled out a time frame for an “exclusive” negotiation and drafting period in exchange for a reasonable deposit. We signed the finished documents in January of 2015. Both parties consulted their separate legal counsel during the drafting process for all three documents.
In short: We agreed to lease the farm for a period of two years in exchange for a monthly payment to the Farmstead Cooperative. In that lease we specified that with a few months notice either party could terminate the lease agreement. We felt that this would allow for a “get to know you” period between the owner and the tenant, which is especially important because in our case we will also be neighbors.
In the Purchase and Sale agreement we signed in January of 2015 we agreed that if the Lease is not terminated by either party, then a portion of the lease payments would be converted directly into shares in the LLC, and that the tenant would be accepted as a new Members of the LLC with a base number of shares owned. Therefore the lease payments contribute to a down-payment on the full property.
In addition the Purchase and Sale agreement commits the new Members to purchasing a minimum amount of shares monthly from the original Members for a defined twenty year period until 100% of the shares had been transferred. The new Members have the option to purchase more than the minimum numbers of shares (up to the remainder of the outstanding shares) in each monthly payment. The Purchase and Sale agreement also defines the value of those shares over the Buy Out period so that the buyers know the exact financial commitment.
During this Buy Out period under our Purchase and Sale agreement, the existing members commit to holding their shares and not enter into other Purchase and Sale agreements with other parties.
If the new Members are unable to purchase the minimum number of shares they would have up to six months to “catch up” to the set schedule, otherwise the Purchase and Sale agreement would be nullified. In that situation the new Members will still own the shares previously purchased, and they remain members of the LLC. As long as they fulfill the responsibilities of LLC members defined in the LLC Agreement, they can remain part owners indefinitely. They may also choose to sell their shares, the process for which is laid out in the LLC Agreement.
It’s important to point out that a given Farmstead Cooperative, LLC can issue shares to multiple parties under multiple circumstances. Our mutual interests may not (and probably will not) perfectly match any other situation.
Likewise the LLC Agreement available for review on this web site is meant to be a starting point for others who may be interested in this method of sharing and transferring agricultural assets of any kind. It was written to apply to Maine law, and therefore if it is meant to be used outside of the State of Maine in the United States of America then you absolutely need professional legal help before applying it to another situation. Even if it is used to create another Farmstead Cooperative in Maine you would be wise to consult a lawyer to review your own priorities, and make sure that the final LLC Agreement you use will reflect those.
In addition to each of us consulting with separate lawyers through the process, I would like to point out that Jo Barrett at Land for Good was also instrumental in helping us think about how this would work — and how it could blow up! — so she deserves a lot of credit for creating this model.