Choosing the right structure: agricultural companies and cooperatives

Gone are the days when farming was almost exclusively a matter for individual farmers. Today, to pool investment, share work and risks, optimise taxation or prepare for the transfer of the farm, many farmers are choosing to form a group. But what legal form does this take? French law offers a wide range of corporate structures adapted to the agricultural world, from specific civil companies to cooperatives, not forgetting hybrid forms.

Choosing the right structure is an important decision, with implications for liability, operation, taxation and relations between partners. This article sets out the main options available to farmers wishing to run their business collectively or simply to structure it better, exploring civil partnerships, commercial companies, SICAs and the ubiquitous cooperative model. This decision is fully in line with the global legal framework for modern agriculture.

Non-trading companies: an ideal framework for agriculture

Since farming is a civil activity, it is logical that civil partnerships should be the most common legal framework for organising farms. In addition to the common law civil partnership, the legislator has created several specific forms to meet the particular needs of the sector.

Specific forms of non-trading agricultural companies

• The GAEC (Groupement Agricole d'Exploitation en Commun - Joint Farming Group) The GAEC was set up in 1962 to enable farmers to work together under conditions comparable to those on family farms. It encourages the pooling of farming resources (land, buildings, equipment, livestock) and the work of the partners. GAECs can be either total (all the partners' activities are pooled) or partial. Their creation is subject to administrative approval, and they must comply with certain rules, particularly in terms of size (the principle of transparency allows each partner to benefit from subsidies as if he or she were an individual farmer, within certain limits). In principle, partners have unlimited liability for the company's debts, but the Articles of Association may limit their liability to a multiple of their contributions.
• EARL (limited liability farm) Introduced in 1985, the EARL is a highly popular form of farming because it offers one major advantage: the liability of the partners is limited to the amount of their contributions. This means that their personal assets are protected in the event of financial difficulties on the farm. The EARL can be set up by a single person (sometimes referred to as an agricultural EURL, although the correct term is a single-person EARL) or by several partners (up to 10), the majority of whom must be farmers. It's a flexible structure, suited to both the protection of an individual farmer and the organisation of a small team. In addition to corporate forms, other forms of organisation are also available. specific legal tools exist to protect the operator's assets.
• The GFA (Groupement Foncier Agricole) Unlike GAECs and EARLs, which are aimed at farming, the main purpose of a GFA is to own and manage agricultural land. It enables land to be pooled, conserved and leased, usually under a long-term rural lease, to one or more farmers (who may be members of the GFA or third parties). The GFA is widely used to facilitate the family transfer of land holdings by avoiding fragmentation, or to enable non-farmers to invest in land while ensuring that it is farmed.
• The GFR (Groupement Foncier Rural) Similar to the GFA, the GFR has a slightly wider scope of action as it can hold and manage buildings for agricultural use. and forestry. It therefore offers a solution for the combined management of these two types of assets.

These different forms therefore serve different purposes: GAEC and EARL for the farming activity itself, with significant differences in terms of responsibility and conditions of access; GFA and GFR for the management of land assets.

Common law civil partnership (SCEA)

In addition to these specific forms, it is still possible to set up a Société Civile d'Exploitation Agricole (SCEA), based on the general law governing civil partnerships (articles 1832 et seq. of the French Civil Code). The SCEA is more flexible than the GAEC or EARL in the way it is set up and operated (no approval required, no limit on the number of partners, possibility of majority non-farming partners under certain conditions), but it does have one major drawback: the partners are liable for the company's debts on an indefinite and joint basis (each partner is liable for his or her personal assets in proportion to his or her share in the company capital). It can be an interesting option for specific projects or when limiting liability is not the main criterion.

Commercial companies: more limited use in production

Is it possible to run a farming business under a conventional commercial form such as a SARL (Société à Responsabilité Limitée) or SA/SAS (Société Anonyme / par Actions Simplifiée)? Yes, technically, there's nothing to prevent it. However, these forms are relatively rare for primary agricultural production. There are several reasons for this. Firstly, the choice of a commercial form may mean losing the benefit of certain statutes, aids or tax regimes specifically attached to the civil nature of agricultural activity. To understand these specific features and the implications for your business, it is essential to understand the legal definition of an agricultural activity. Secondly, the culture and tradition of the sector favour civil or cooperative forms. Finally, the complexity and accounting and legal obligations of commercial companies may seem less suited to the reality of many farms.

On the other hand, commercial companies become much more appropriate as soon as the activity goes beyond simple production: industrial processing of products, major trading activities (purchase of external products for resale), development of marketing networks, etc. In these cases, the commercial logic predominates and the legal structure must be adapted. In these cases, the commercial logic predominates and the legal structure needs to be adapted. It is common to see agricultural groups structured with a civil company for production and a commercial company for processing or sales.

The SICA: a hybrid form

Between purely agricultural companies and traditional commercial structures, there is an interesting intermediate form: the SICA (Société d'Intérêt Collectif Agricole), governed by Articles L. 531-1 et seq. of the French Rural Code.

The purpose of a SICA is to create and manage facilities and equipment, provide services, or participate in activities that promote the production, processing or marketing of agricultural products, in the interests of its members' farms. What makes it special is that it can bring together farmers (who must hold the majority of votes in the decision-making bodies) and non-farming individuals or legal entities (suppliers, customers, processors, local authorities, etc.).

It can be set up as a non-trading company or a trading company (in practice, often an SARL). SICAs can therefore be used to create structured partnerships between the farming community and its economic partners upstream or downstream, to bring collective projects to fruition (for example, a methanisation unit, a shared processing workshop, a logistics platform, etc.).

The cooperative model: a pillar of French agriculture

It's impossible to talk about collective structures in agriculture without mentioning cooperatives. Historically rooted in the French rural landscape since the end of the 19th century, they play an absolutely major economic role. Depending on the sector, they play a very significant role in supplying farms with inputs (seeds, fertilisers, animal feed), and in collecting, processing and marketing produce (milk, cereals, meat, wine, etc.). More than 60% of French agricultural production passes through a cooperative. There are also service cooperatives, such as CUMAs (Coopératives d'Utilisation de Matériel Agricole), which enable farmers to share expensive equipment.

What is their legal status? After historic debates, the law settled the matter in 1972: agricultural co-operatives and their unions constitute "a special category of companies, distinct from civil companies and commercial companies". (article L. 521-1 of the French Rural Code). They are subject to specific rules, mainly defined in Book V of the French Rural Code.

Their operation is based on fundamental principles:

• Membership is generally free for farmers in the constituency.
• Power is democratic: in principle, each member of the cooperative has one vote at the General Meeting, regardless of the amount of capital or the volume of business (the "one man, one vote" principle).
• The aim is not to maximise profit in order to remunerate capital, but to provide services or add value to members' products at the best price. Any surpluses (after allocation to compulsory reserves) are distributed as a priority to members in the form of "rebates", calculated in proportion to the transactions carried out with the cooperative.

Faced with modern economic challenges (concentration, increased competition, the need for financing), agricultural cooperative law has had to evolve. Successive reforms (in particular an ordinance in 2006) have sought to modernise their governance (role of directors, transparency), strengthen their financial base by allowing them to issue instruments such as participating securities or shares that can be subscribed to, subject to conditions, by third parties who are not co-operators, and facilitate restructuring operations (mergers, demergers).

Finally, there is a notable historical feature: for a long time, the law recognised the validity of arbitration clauses (allowing recourse to arbitration in the event of a dispute) in the articles of association and contracts of agricultural cooperatives, well before this was widely accepted in civil contracts concluded on a professional basis (generalised by the NRE law of 2001).

The choice of legal structure is a decisive step for any farm, whether individual or collective. Each form has its own advantages, disadvantages and constraints.

Advice tailored to your situation and your plans is essential if you are to make the right choice. Contact us to discuss and secure the legal framework for your business.

Sources

• Code rural et de la pêche maritime :
  • Non-trading companies: L. 323-1 et seq. (GAEC), L. 324-1 et seq. (EARL), L. 322-1 et seq. (GFA), L. 322-23 et seq.
  • SICA: L. 531-1 et seq.
  • Agricultural cooperatives: L. 521-1 et seq. (Status and operation), L. 523-1 et seq.
• Civil Code: Articles 1832 et seq. (Common law on civil companies)