Foothill Farming
University of California
Foothill Farming

Legal Risk

What Is Legal Risk?

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Legal risk stems from tort liability - being subject to a civil suit - which is of particular concern to direct marketers. Legal risk also arises from environmental liability, regulations, and the business structure of your operation. Legal issues cut across all other risk areas: production, financial, human, and marketing.

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Disclaimer: Reasonable efforts have been made to ensure the accuracy of the information contained on this website. However, the effect of future legislative, administrative and judicial developments cannot be predicted. Use of the materials on this website represents an understanding that the information is for educational purposes only. This information should not be used as a substitute or replacement for individual legal advice. Each individual should consult an attorney for advice and further information regarding their specific situation.

Some Sources of Legal Risk

  • Business structure - impacts taxes, estate planning and transfer, exposure to liability and being sued
  • Bankruptcy and foreclosure
  • Contractual arrangements
  • Tort liability (being sued)
  • Statutory obligations, including taxes, labor laws, use of chemicals, participation in some farm programs, among others.
  • Environmental liability (pollution - civil and criminal penalties can apply)


Some Questions to Ask to Assess Your Legal Risk

Tort Liability:
  • Have I reviewed my property and liability insurance policies? Do they cover risks I might have, such as pollution and livestock?
  • Am I covered when I participate in community activities?
  • Are buildings and equipment that I lease covered?
  • Are my recent acquisitions covered?
Business Structure:
  • Does my business structure adequately protect me from liability?
  • Is my current business structure optimal for estate planning and transfer?
  • Does my current business structure optimize my tax liability?
  • What are my options if I must consider bankruptcy or am under threat of foreclosure?
Regulatory (including environmental and employment):
  • Do I need to perform an environmental audit?
  • Do I know about and follow environmental record keeping requirements?
  • Is my knowledge of regulations up to date?
  • Am I aware of all my contractual obligations in the other risk areas of my operation?


Source: USDA Risk Management Agency. "Introduction to Risk Management: Understanding Agricultural Risks." Revised December 1997

This information made available due to a grant from the USDA Risk Management Agency.

Tools for Mitigating and Planning for Legal Risk

  • Carry farm or business liability insurance, including product liability.
  • Be aware: sources of legal risk are more varied and complex for direct marketers, especially for U-picks.
  • Check your business structure! To limit your personal liability, minimize taxes, and to ease estate transitions, look into partnerships, limited partnerships, limited liability companies, and corporations (C or S) as alternative structures.
  • Develop good relationships and communication with your neighbors.
  • Use good agricultural practices to reduce environmental risk. 
  • Minimize spray drift.
  • Good record-keeping can prove regulatory compliance.
  • Develop a contingency plan.

Remember: It's important to choose the tools that are best for you, your level of risk tolerance, and your operation.




Tort Liability:

Business Structure:

Regulatory (including environmental and employment):


Additional Legal Risk Management Resources

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