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Change of Ownership Rules for American Crystal Sugar Stock

by | Jan 14, 2021 | Agricultural Law |

In the summer of 2020, the American Crystal Sugar Company Board of Directors approved a new Active Farmer Policy for Preferred Share Ownership that will change who may own stock in American Crystal. American Crystal sent letters to shareholders at the end of July 2020, notifying shareholders of these approved changes. It is important for shareholders to fully understand how this new Active Farmer Policy will impact ownership in American Crystal stock starting on September 1, 2021.

Shareholders own their American Crystal stock in many different ways. This Active Farmer Policy may effect shareholders differently depending on their ownership interest. Currently, American Crystal requires all non-farming shareholders to place their shares in some form of joint venture or partnership with an active farmer in order to be at risk in the sugarbeet farming operations. A number of non-farming shareholders also have their interest in Trust for their benefit. There are also active farmers who own their shares in their sole name or farming entities such as corporations. This new policy will impact all of these ownership interests.

Under this new policy, all shareholders that are natural persons, and all natural persons who are beneficial owners must be “active farmers” who provide a “significant contribution” to a sugarbeet farming operation. American Crystal defines the “significant contribution” as providing:

A. A material portion of the financing, land, and/or equipment of a sugarbeet farming operation, not including the mere contribution of American Crystal stock to a shareholder entity; AND

B. The contribution of active personal labor and/or active personal management consisting of:

  1. At least 25% of the total annual combined labor and management hours of a sugarbeet farming operation, OR
  2. At least 250 hours of the annual combined labor and management of a sugarbeet farming operation

Shareholders bear the burden of maintaining records documenting this contribution to a sugarbeet farming operation, and American Crystal reserves the right to request documentation to support a shareholder’s contribution. American Crystal also intends to audit compliance with this policy by a shareholder and any person who is a beneficial owner of American Crystal stock.

There are three key elements to the Active Farmer Policy to remember. First, the Policy will not be effective until September 1, 2021. Second, No person that directly or beneficially owns ACSC stock by August 31, 2021 will be required to sell their ACSC stock. Third, American Crystal has included a family exception to the significant contribution requirement described above.

Shareholders who own or are the beneficial owners of ACSC shares prior to September 1, 2021, will be grandfathered in for the shares that they own by this deadline. However, Anyone who either purchases, inherits, or is gifted additional shares after this deadline will be subject to the Active Farmer Policy. A shareholder may own some shares that have been grandfathered in, and other shares that are subject to the Active Farmer Policy. Any shareholder who owns shares that are not grandfathered in and do not meet either the significant contribution requirement or a family exception will be forced to dispose of their shares.

Non-farming shareholders who acquire their ownership in American Crystal Shares after September 1, 2021, may still keep their shares so long as they participate in an entity with family members under the family exception. For the purpose of this policy, “family members” include great grandparents, grandparents, parent, children, grandchildren, great-grandchildren, spouse, sibling, aunt, uncle, niece, nephew, father-in-law, mother-in-law, daughter-in-law, son-in-law, and first cousins. For example, if a shareholder who owned ACSC shares that were grandfathered in passed away and their daughter inherited that interest, she could keep her interest so long as she participated in an entity with a family member listed above.

Another factor to consider is joint tenancy ownership. American Crystal currently allows individuals to own their shares as Joint Tenants. Any person who owns American Crystal shares as Joint Tenants prior to the September 1, 2021, deadline is grandfathered in for all of the shares held jointly. For example, if a husband and wife own 100 shares as Joint Tenants, both spouses are grandfathered in for the entire 100 shares. Not just for the 50 shares representing each half.

Finally, it is important to be aware of the process for the implementation of this new policy. While American Crystal states the policy will begin September 1, 2021, any transfers made in anticipation of this policy must be approved by American Crystal’s Board. Presently, the last board meeting for2021 stock transfers is June 23, 2021. At this time, transfers will not be allowed at the July 25 or August 25 meeting. It is important that shareholders execute their transfers sooner rather than later, so they have enough time to get them approved if necessary. Also, remember that there are deadlines for filing transfer documents and those deadlines are well in advance of the board meetings.

The application of this policy is new and complex. Given the various ways shareholders own their shares, each shareholder must understand how this policy applies to their ownership interest. We are always happy to assist you in understanding the impact this new policy may have on you, and discuss whether it may be beneficial for you to change how you own your shares. Feel free to contact our office to schedule an appointment today.