Should I Start an LLC for My Orchard?

Starting a limited liability company (LLC) for your orchard can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For an orchard, lawsuits can arise from things like a customer falling ill after consuming produce you sold them or a twisted ankle suffered by a client as you show them around.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your orchard seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for an Orchard?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for an Orchard

By starting an LLC for your orchard, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Orchards will benefit from liability protection because of the risk of injuries to employees and customers, distribution of potentially hazardous food products, and other general business risks.

Example 1: A customer buys a batch of apples from your orchard that contains an out-of-date apple. Assuming all the apples are safe to consume, the customer eats the out-of-date apple and becomes extremely ill. Consequently, he sues your business for the bodily harm he alleges you caused. Limited liability would protect your personal assets from being used to satisfy any business requirement to compensate the plaintiff.

Example 2: In order to offset the high upfront cost of your orchard, you take out a business loan. Despite a few months of above-average performance, it becomes apparent that you will not be able to repay your loan on time. As such, the creditor brings a lawsuit against your business for defaulting on this debt. In this situation, your personal assets could not be used to satisfy any business liability to pay compensation.

Example 3: In the parking lot of your orchard, there is a large pothole by the entrance that your business has not yet fixed. This pothole resulted in a customer suffering a flat tire and suing your business for this property damage as a consequence. In the ensuing litigation, if the court finds you are liable to pay compensation to the plaintiff, this can only be imposed insofar as the value of your business’s assets.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for an Orchard

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if an orchard owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Orchards rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

For orchards, which own a number of valuable assets (such as the trees themselves, plus the land they are planted on), insurance is rendered even more vital.

Common Situations Business Insurance May Cover for an Orchard

Example 1: You hire a web designer to create your orchard’s new website. One of the images he uses was protected under copyright. The photographer who claims ownership of the photo sues the business for copyright infringement. General liability insurance should cover your legal fees and any resulting payout.

Example 2: It is discovered that one batch of the orchard’s products distributed throughout the state has been linked to an E. coli breakout. Two of the customers that fell ill were hospitalized, accumulating over $200,000 in medical bills, and are suing the orchard. Your general liability coverage should pay for legal representation as well as the payout awarded by the courts for medical and personal damages.

Example 3: You are hosting a tasting party at the orchard, and one of the customers breaks a glass and cuts their finger. Their trip to the emergency room for stitches cost over $5,000. General liability insurance should cover their medical bills and any aftercare costs stemming from this injury.

Other Types of Coverage Orchards Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all orchards should obtain.

Commercial Auto Insurance

If your business offers delivery services or you use a vehicle for other work-related purposes, you will need to carry the state-mandated levels of commercial auto insurance on each of the vehicles in your fleet. A commercial auto insurance policy covers business-owned automobiles that are driven on public roadways.

Commercial auto insurance is often purchased as part of a business owner’s policy (BOP).

Commercial Property Insurance

If you own the building and business property used by the orchard, it is important that you properly cover yourself against a potential loss. Agricultural businesses require a lot of expensive, specialized equipment. Before taking out a commercial property insurance policy, carefully consider the cost to replace all business property as well as what it would cost to rebuild in the event of a total loss.

Workers’ Compensation Insurance

Orchards require a lot of hands-on work, so you likely have a team of employees. If this is the case, the state likely requires you to carry workers’ compensation insurance on all full- and part-time employees.

Workers’ compensation covers employees for on-the-job accidents and injuries. While most states allow business owners to exempt themselves from coverage, owners who contribute directly to the day-to-day operations of the business typically choose to include themselves on their workers’ compensation policy.

Commercial Umbrella Insurance

Since some liability risks can exceed primary policy limits, a commercial umbrella liability policy should be considered. It offers an extra layer of protection in the event that a large covered lawsuit occurs.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, commercial auto insurance, workers’ compensation insurance, and commercial property insurance.

Read our Business Insurance for Orchards article for more info.

Expect fairly significant startup costs for your orchard, with the exact figure varying depending on the number of acres your property has. You should be able to plant between 100–400 trees per acre at the cost of $10–$20 per tree. It is recommended to include a minimum of five years of operating expenses in the estimation of this startup figure.

Visit our How to Start an Orchard guide to learn more about the costs of starting and maintaining this business.

Your ongoing expenses will mainly be associated with the ongoing maintenance of farmland including fertilizer, pest-control, new tree planting, and harvesting costs.

Learn more about running an orchard.

Orchards make money through the sale of their agricultural products to individual customers or business entities who sell and turn a profit on the sale of these products.

Learn more about starting an orchard.

Sometimes standalone, sometimes in conjunction with entire farms, orchards provide a variety of fruit and vegetable options for individuals or families looking for fun and healthy food.

Beginning orchards can be quite expensive, but as they increase in profitability and size, orchards can realize higher profit margins as expensive machinery can be used on a larger amount of land.

Learn more about starting an orchard.