Thirty years ago, Gary Sonstegard and his family began raising cattle near Montevideo, MN. In that time, they went from raising a few head to calving 200 Red Angus cows and working with an additional 150 cows through cooperators. Up until five years ago, this outfit was a sole proprietorship known as River Ranch Red Angus. But in 2002, it became a separate entity when Gary's youngest son, Tyler, returned to the operation.
“When we brought Tyler into the operation, we gave him the choice of either working for a while on a salary, or a chance to buy in,” Gary recalls. “He wanted to buy in right away.”
At the same time, Gary and his wife Elaine were working through the estate-planning process. Their attorney encouraged them to consider setting up a limited liability corporation (LLC).
“We wanted to transfer ownership on a gradual basis,” Gary says. “This was the best vehicle to do it with.” As a result, Sonstegard Cattle Company, LLC, was formed.
The ability to transfer shares of the business to family members was a chief reason the Sonstegards chose an LLC structure. Another benefit was limited liability, which protects partners' assets outside the business.
“The LLC structure gives someone else a chance to gradually work into the operation because it is a major investment,” Gary says.
The first step of setting up the LLC was to put a dollar value on all business assets and split it among owners. Gary and Elaine each own 40%; Tyler bought the other 20%.
Sonstegards continue to work with their attorney to answer questions and discuss issues that arise from business meetings between Gary, Elaine and Tyler. These meetings occur almost once a week, and serve as a way to keep track of work schedules, responsibilities and goal monitoring.
Looking down the road, Tyler or his siblings can buy shares in the business as their parents phase out. And if something should happen to either of them, their shares go into a trust.
“There's six kids in the family,” Tyler explains, “and each one would get a certain percentage put into a trust. I would be able to purchase it from there.”
The trust provides an opportunity for both the farming and non-farming heirs to benefit. Non-farming heirs receive financial reward by having their shares purchased by farming heirs.
“If something did happen to us,” Gary says, “we want the cattle operation to keep going.”