Should I Start an LLC for My Herb Farm?

Starting a limited liability company (LLC) for your herb farm 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 a herb farm, lawsuits can arise from things like product liability claims, employment law violations, or land-related disputes.

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

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

Do I Need an LLC for an Herb Farm?

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 Herb Farm

By starting an LLC for your herb farm, 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.

Herb farms will benefit from liability protection because of the risk of loss from failed crops, low harvest yields, and pests as well as general business risks.

Example 1: Your herb farm receives notice of a product liability lawsuit being brought against it as the herbs it is selling are defective. In this instance, your personal assets would be protected from being used to satisfy any damages the court may award to the plaintiff.

Example 2: An employee at your herb farm has experienced continued harassment against her from male superiors. Despite reporting this several times, her complaints have not been taken seriously, which prompts her to sue your business for failing to keep her safe in a hostile work environment. Limited liability would protect you from being held personally liable in the event that your herb farm is found to have infringed employment discrimination laws.

Example 3: Your herb farm has been emitting significant amounts of air pollution that breach environmental regulations on this matter. In the event that a lawsuit is brought against your business for this violation, your personal assets would be protected by limited liability from being used to satisfy any damages awarded by the court in this lawsuit.

Example 4: While visiting your farm, a customer trips over a potted plant, causing them to sprain their ankle. They ask you to cover the resulting medical expenses.

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 Herb Farm

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 herb farm 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.

For questions about tax solutions for your herb farm, we recommend scheduling a free tax consultation.

Credibility and Consumer Trust

Herb farms 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.

Businesses such as herb farms will need business insurance for a variety of reasons. Product issues, property damage, and even customer harm may lead to lawsuits, putting your farm at risk.

Common Situations Business Insurance May Cover for a Herb Farm

Example 1: To gain further exposure for the business, you have signed up to sell plants and herbs at a local farmer’s market. The market requires $1 million of liability insurance for all participants. A general liability policy will help fulfill that requirement.

Example 2: While visiting your farm, a customer trips over a potted plant. Her injuries require several trips to the doctor and two weeks out of work. She names your business in a lawsuit. General liability insurance should cover your legal expenses and damages awarded by the court.

Example 3: Unbeknownst to you, your website designer uses a copyrighted photo when designing the company site. The photo’s owner has named you in a lawsuit for copyright infringement. General liability insurance will cover legal representation and awarded payments, up to the limits of the policy.

Other Types of Coverage Herb Farms 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 herb farms should obtain.

Product Liability Insurance

Product liability insurance is important for anyone who manufactures or sells a product to the public. If a client blames your product for their injury or illness, they could hold you responsible. The policy will cover awarded damages stemming from the lawsuit, as well as associated legal fees.

Product liability insurance is tailored to your business’s specific needs and is generally sold as part of a business owner’s policy (BOP).

Commercial Property Insurance

For entrepreneurs in the agriculture industry, business property is an integral part of how revenue is generated. A commercial property insurance policy protects those assets when covered losses, such as fire or windstorm, occur. This includes business-owned buildings, inventory, and equipment.

Commercial property insurance is typically written as part of a business owners’ policy (BOP). Due to the unique nature of this business, farm owners are encouraged to discuss what is covered under the policy and what is excluded. Those who wish to insure their crops should discuss optional endorsements with an insurance professional.

Commercial Auto Insurance

Any company that uses an automobile for business purposes will need to purchase a separate commercial auto insurance policy. In the event of an accident, the policy will pay to repair or replace the company-owned vehicle, and extend liability to third-party claimants for personal injury and damage to their vehicle. While the state mandates minimum coverage, business owners should consider purchasing limits higher than the mandated minimum.

Workers’ Compensation Insurance

While most states require workers’ compensation insurance for businesses, the rules for agricultural workers are slightly different. Some states require coverage when payroll meets a certain threshold, while others do not legally require any coverage. Work with your insurance agent to identify your state’s requirements and consider purchasing voluntary compensation.

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 and commercial property insurance.

Read our Business Insurance article for more info.

While the startup cost of a herm farm is extremely low, it does vary depending on how seriously you intend to take your business. Only a few hundred dollars are necessary to purchase the tools and seeds you need, though.

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

The ongoing expenses of running an herb farm include consumables like seeds, fertilizer, potting soil, and containers as well as utility fees and labor costs if you have employees.

Learn more about running an herb farm.

Herb farms make money by selling herbs to wholesalers and retail consumers.

Learn more about starting an herb farm.

Herb farms grow and sell various herbs to sell either directly to customers or through stores.

Some herb farmers focus on a particular niche, such as culinary herbs, aromatherapy herbs, or medicinal herbs, to gain a competitive edge.

An herb farm can prove very profitable with potential revenues as high as $30,000 per acre of land farmed.

Learn more about starting an herb farm.