An Act concerning business entities; relating to agricultural corporations; relating to the penalty for failure to file the annual report on time; amending K.S.A. 17-5903, 17-5904 and 17-7509 and repealing the existing sections.

Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 17-5903 is hereby amended to read as follows: 17- 5903. As used in this act:

(a) ``Corporation'' means a domestic or foreign corporation organized for profit or nonprofit purposes.

(b) ``Nonprofit corporation'' means a corporation organized not for profit and which qualifies under section 501(c)(3) of the federal internal revenue code of 1954 1986 as amended.

(c) ``Limited partnership'' has the meaning provided by K.S.A. 56- 1a01, and amendments thereto.

(d) ``Limited agricultural partnership'' means a limited partnership founded for the purpose of farming and ownership of agricultural land in which:

(1) The partners do not exceed 10 in number;

(2) the partners are all natural persons, persons acting in a fiduciary capacity for the benefit of natural persons or nonprofit corporations, or general partnerships other than corporate partnerships formed under the laws of the state of Kansas; and

(3) at least one of the general partners is a person residing on the farm or actively engaged in the labor or management of the farming operation. If only one partner is meeting the requirement of this provision and such partner dies, the requirement of this provision does not apply for the period of time that the partner's estate is being administered in any district court in Kansas.

(e) ``Corporate partnership'' means a partnership, as defined in K.S.A. 56-306, and amendments thereto, which has within the association one or more corporations or one or more limited liability companies.

(f) ``Feedlot'' means a lot, yard, corral, or other area in which livestock fed for slaughter are confined. The term includes within its meaning agricultural land in such acreage as is necessary for the operation of the feedlot.

(g) ``Agricultural land'' means land suitable for use in farming.

(h) ``Farming'' means the cultivation of land for the production of agricultural crops, the raising of poultry, the production of eggs, the pro- duction of milk, the production of fruit or other horticultural crops, graz- ing or the production of livestock. Farming does not include the produc- tion of timber, forest products, nursery products or sod, and farming does not include a contract to provide spraying, harvesting or other farm serv- ices.

(i) ``Fiduciary capacity'' means an undertaking to act as executor, ad- ministrator, guardian, conservator, trustee for a family trust, authorized trust or testamentary trust or receiver or trustee in bankruptcy.

(j) ``Family farm corporation'' means a corporation:

(1) Founded for the purpose of farming and the ownership of agri- cultural land in which the majority of the voting stock is held by and the majority of the stockholders are persons related to each other, all of whom have a common ancestor within the third degree of relationship, by blood or by adoption, or the spouses or the stepchildren of any such persons, or persons acting in a fiduciary capacity for persons so related;

(2) all of its stockholders are natural persons or persons acting in a fiduciary capacity for the benefit of natural persons; and

(3) at least one of the stockholders is a person residing on the farm or actively engaged in the labor or management of the farming operation. A stockholder who is an officer of any corporation referred to in this subsection and who is one of the related stockholders holding a majority of the voting stock shall be deemed to be actively engaged in the man- agement of the farming corporation. If only one stockholder is meeting the requirement of this provision and such stockholder dies, the require- ment of this provision does not apply for the period of time that the stockholder's estate is being administered in any district court in Kansas.

(k) ``Authorized farm corporation'' means a Kansas corporation, other than a family farm corporation, all of the incorporators of which are Kan- sas residents, family farm corporations or family farm limited liability agricultural companies or any combination thereof, and which is founded for the purpose of farming and the ownership of agricultural land in which:

(1) The stockholders do not exceed 15 in number; and

(2) the stockholders are all natural persons, family farm corporations, family farm limited liability agricultural companies or persons acting in a fiduciary capacity for the benefit of natural persons, family farm cor- porations, family farm limited liability agricultural companies or non- profit corporations; and

(3) at least 30% of the stockholders are persons residing on the farm or actively engaged in the day-to-day labor or management of the farming operation. If only one of the stockholders is meeting the requirement of this provision and such stockholder dies, the requirement of this provision does not apply for the period of time that the stockholder's estate is being administered in any district court in Kansas.

For the purposes of this definition, if more than one person receives stock by bequest from a deceased stockholder, all of such persons, col- lectively, shall be deemed to be one stockholder, and a husband and wife, and their estates, collectively, shall be deemed to be one stockholder.; and

(3) if all of the stockholders are natural persons, at least one stock- holder must be a person residing on the farm or actively engaged in labor or management of the farming operation. If only one stockholder is meet- ing the requirement of this provision and such stockholder dies, the re- quirement of this provision does not apply for the period of time that the stockholder's estate is being administered in any district court in Kansas.

(l) ``Trust'' means a fiduciary relationship with respect to property, subjecting the person by whom the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it. A trust includes a legal entity holding property as trustee, agent, escrow agent, attorney- in-fact and in any similar capacity.

(m) ``Family trust'' means a trust in which:

(1) A majority of the equitable interest in the trust is held by and the majority of the beneficiaries are persons related to each other, all of whom have a common ancestor within the third degree of relationship, by blood or by adoption, or the spouses or stepchildren of any such persons, or persons acting in a fiduciary capacity for persons so related; and

(2) all the beneficiaries are natural persons, are persons acting in a fiduciary capacity, other than as trustee for a trust, or are nonprofit cor- porations.

(n) ``Authorized trust'' means a trust other than a family trust in which:

(1) The beneficiaries do not exceed 15 in number;

(2) the beneficiaries are all natural persons, are persons acting in a fiduciary capacity, other than as trustee for a trust, or are nonprofit cor- porations; and

(3) the gross income thereof is not exempt from taxation under the laws of either the United States or the state of Kansas.

For the purposes of this definition, if one of the beneficiaries dies, and more than one person succeeds, by bequest, to the deceased beneficiary's interest in the trust, all of such persons, collectively, shall be deemed to be one beneficiary, and a husband and wife, and their estates, collectively, shall be deemed to be one beneficiary.

(o) ``Testamentary trust'' means a trust created by devising or be- queathing property in trust in a will as such terms are used in the Kansas probate code.

(p) ``Poultry confinement facility'' means the structures and related equipment used for housing, breeding, laying of eggs or feeding of poultry in a restricted environment. The term includes within its meaning only such agricultural land as is necessary for proper disposal of liquid and solid wastes and for isolation of the facility to reasonably protect the con- fined poultry from exposure to disease. As used in this subsection, ``poul- try'' means chickens, turkeys, ducks, geese or other fowl.

(q) ``Rabbit confinement facility'' means the structures and related equipment used for housing, breeding, raising, feeding or processing of rabbits in a restricted environment. The term includes within its meaning only such agricultural land as is necessary for proper disposal of liquid and solid wastes and for isolation of the facility to reasonably protect the confined rabbits from exposure to disease.

(r) ``Swine marketing pool'' means an association whose membership includes three or more business entities or individuals formed for the sale of hogs to buyers but shall not include any trust, corporation, limited partnership or corporate partnership, or limited liability company other than a family farm corporation, authorized farm corporation, limited lia- bility agricultural company, limited agricultural partnership, family trust, authorized trust or testamentary trust.

(s) ``Swine production facility'' means the land, structures and related equipment owned or leased by a corporation or limited liability company and used for housing, breeding, farrowing or feeding of swine. The term includes within its meaning only such agricultural land as is necessary for proper disposal of liquid and solid wastes in environmentally sound amounts for crop production and to avoid nitrate buildup and for isolation of the facility to reasonably protect the confined animals from exposure to disease.

(t) ``Limited liability company'' has the meaning provided by K.S.A. 17-7602, and amendments thereto.

(u) ``Limited liability agricultural company'' means a limited liability company founded for the purpose of farming and ownership of agricul- tural land in which:

(1) The members do not exceed 10 in number; and

(2) the members are all natural persons, family farm corporations, family farm limited liability agriculture companies, persons acting in a fiduciary capacity for the benefit of natural persons, family farm corpo- rations, family farm limited liability agricultural companies or nonprofit corporations, or general partnerships other than corporate partnerships formed under the laws of the state of Kansas; and

(3) at least one of the members is a person residing on the farm or actively engaged in the labor or management of the farming operation. If only one member is meeting the requirement of this provision and such member dies, the requirement of this provision does not apply for the period of time that the member's estate is being administered in any district court in Kansas.; and

(3) if all of the members are natural persons, at least one member must be a person residing on the farm or actively engaged in labor or management of the farming operation. If only one member is meeting the requirement of this provision and such member dies, the requirement of this provision does not apply for the period of time that the member's estate is being administered in any district court in Kansas.

(v) ``Dairy production facility'' means the land, structures and related equipment used for housing, breeding, raising, feeding or milking dairy cows. The term includes within its meaning only such agricultural land as is necessary for proper disposal of liquid and solid wastes and for iso- lation of the facility to reasonably protect the confined cows from expo- sure to disease.

(w) ``Family farm limited liability agricultural company'' means a lim- ited liability company founded for the purpose of farming and ownership of agricultural land in which:

(1) The majority of the members are persons related to each other, all of whom have a common ancestor within the third degree of relation- ship, by blood or by adoption, or the spouses or the stepchildren of any such persons, or persons acting in a fiduciary capacity for persons so related;

(2) the members are natural persons or persons acting in a fiduciary capacity for the benefit of natural persons; and

(3) at least one of the members is a person residing on the farm or actively engaged in the labor or management of the farming operation. If only one member is meeting the requirement of this provision and such member dies, the requirement of this provision does not apply for the period of time that the member's estate is being administered in any dis- trict court in Kansas.

(x) ``Hydroponics'' means the growing of vegetables, flowers, herbs, or plants used for medicinal purposes, in a growing medium other than soil.

Sec. 2. K.S.A. 17-5904 is hereby amended to read as follows: 17- 5904. (a) No corporation, trust, limited liability company, limited part- nership or corporate partnership, other than a family farm corporation, authorized farm corporation, limited liability agricultural company, family farm limited liability agricultural company, limited agricultural partner- ship, family trust, authorized trust or testamentary trust shall, either di- rectly or indirectly, own, acquire or otherwise obtain or lease any agri- cultural land in this state. The restrictions provided in this section do not apply to the following:

(1) A bona fide encumbrance taken for purposes of security.

(2) Agricultural land when acquired as a gift, either by grant or devise, by a bona fide educational, religious or charitable nonprofit corporation.

(3) Agricultural land acquired by a corporation or a limited liability company in such acreage as is necessary for the operation of a nonfarming business. Such land may not be used for farming except under lease to one or more natural persons, a family farm corporation, authorized farm corporation, family trust, authorized trust or testamentary trust. The cor- poration shall not engage, either directly or indirectly, in the farming operation and shall not receive any financial benefit, other than rent, from the farming operation.

(4) Agricultural land acquired by a corporation or a limited liability company by process of law in the collection of debts, or pursuant to a contract for deed executed prior to the effective date of this act, or by any procedure for the enforcement of a lien or claim thereon, whether created by mortgage or otherwise, if such corporation divests itself of any such agricultural land within 10 years after such process of law, contract or procedure, except that provisions of K.S.A. 9-1102, and amendments thereto, shall apply to any bank which acquires agricultural land.

(5) A municipal corporation.

(6) Agricultural land which is acquired by a trust company or bank in a fiduciary capacity or as a trustee for a nonprofit corporation.

(7) Agricultural land owned or leased or held under a lease purchase agreement as described in K.S.A. 12-1741, and amendments thereto, by a corporation, corporate partnership, limited corporate partnership or trust on the effective date of this act if: (A) Any such entity owned or leased such agricultural land prior to July 1, 1965, provided such entity shall not own or lease any greater acreage of agricultural land than it owned or leased prior to the effective date of this act unless it is in com- pliance with the provisions of this act; (B) any such entity was in compli- ance with the provisions of K.S.A. 17-5901 prior to its repeal by this act, provided such entity shall not own or lease any greater acreage of agri- cultural land than it owned or leased prior to the effective date of this act unless it is in compliance with the provisions of this act, and absence of evidence in the records of the county where such land is located of a judicial determination that such entity violated the provisions of K.S.A. 17-5901 prior to its repeal shall constitute proof that the provisions of this act do not apply to such agricultural land, and that such entity was in compliance with the provisions of K.S.A. 17-5901 prior to its repeal; or (C) any such entity was not in compliance with the provisions of K.S.A. 17-5901 prior to its repeal by this act, but is in compliance with the provisions of this act by July 1, 1991.

(8) Agricultural land held or leased by a corporation or a limited li- ability company for use as a feedlot, a poultry confinement facility or rabbit confinement facility.

(9) Agricultural land held or leased by a corporation for the purpose of the production of timber, forest products, nursery products or sod.

(10) Agricultural land used for bona fide educational research or sci- entific or experimental farming.

(11) Agricultural land used for the commercial production and con- ditioning of seed for sale or resale as seed or for the growing of alfalfa by an alfalfa processing entity if such land is located within 30 miles of such entity's plant site.

(12) Agricultural land owned or leased by a corporate partnership or limited corporate partnership in which the partners associated therein are either natural persons, family farm corporations, authorized farm corpo- rations, limited liability agricultural companies, family trusts, authorized trusts or testamentary trusts.

(13) Any corporation, either domestic or foreign, or any limited lia- bility company, organized for coal mining purposes which engages in farming on any tract of land owned by it which has been strip mined for coal.

(14) Agricultural land owned or leased by a limited partnership prior to the effective date of this act.

(15) Except as provided by K.S.A. 17-5908 and amendments thereto, agricultural land held or leased by a corporation or a limited liability company for use as a swine production facility in any county which has voted favorably pursuant to K.S.A. 17-5908 and amendments thereto, ei- ther by county resolution or by the electorate.

(16) Agricultural land held or leased by a corporation or a limited liability company for use as a dairy production facility in any county which has voted favorably pursuant to K.S.A. 17-5907 and amendments thereto, either by county resolution or by the electorate.

(17) Agricultural land held or leased by a corporation or a limited liability company used in a hydroponics setting.

(b) Production contracts entered into by a corporation, trust, limited liability company, limited partnership or corporate partnership and a per- son engaged in farming for the production of agricultural products shall not be construed to mean the ownership, acquisition, obtainment or lease, either directly or indirectly, of any agricultural land in this state.

(c) Any corporation, trust, limited liability company, limited partner- ship or corporate partnership, other than a family farm corporation, au- thorized farm corporation, limited liability agricultural company, family farm limited liability agricultural company, limited agricultural partner- ship, family trust, authorized trust or testamentary trust, violating the provisions of this section shall be subject to a civil penalty of not more than $50,000 and shall divest itself of any land acquired in violation of this section within one year after judgment is entered in the action. The district courts of this state may prevent and restrain violations of this section through the issuance of an injunction. The attorney general or district or county attorney shall institute suits on behalf of the state to enforce the provisions of this section.

(d) Civil penalties sued for and recovered by the attorney general shall be paid into the state general fund. Civil penalties sued for and recovered by the county attorney or district attorney shall be paid into the general fund of the county where the proceedings were instigated.

Sec. 3. On or after July 1, 1996, K.S.A. 17-7509 is hereby amended to read as follows: 17-7509. (a) In case any corporation organized for profit which is required to file an annual report and pay the annual franchise tax prescribed by this act shall fail or neglect to make such report at the time prescribed, such corporation shall be subject to a penalty of one hundred dollars ($100), and an additional penalty of five dollars ($5) per day for each day's omission after the time limited in this act for filing such report and paying such tax $75. Such penalty and the annual tax or taxes required to be paid by this act may be recovered by an action in the name of the state, and all moneys recovered shall be paid into the state treasury to the credit of the general fund. Any corporation shall have the right to be heard by the secretary of state upon the matter of determi- nation of the amount of taxes or penalties due under the provisions of this act. For good cause shown, the secretary of state may remit or waive all or any part of any penalties due under this act.

(b) On complaint of the secretary of state that any corporation has failed to pay the annual taxes prescribed by this act, it shall be the duty of the county or district attorney, or the attorney general, to institute such action in the district court of Shawnee county, Kansas, or of any county in which such corporation has an office or place of business.

(c) The penalties provided for in subsection (a) also may be assessed against any corporation for the reason that such corporation has been canceled or its existence forfeited pursuant to the Kansas general cor- poration code. No penalty shall be charged pursuant to this subsection, if a corporation is assessed penalties pursuant to grounds specified in subsection (a).

Sec. 4. On and after July 1, 1996, K.S.A. 17-7509 is hereby repealed.

Sec. 5. K.S.A. 17-5903 and 17-5904 are hereby repealed.

Sec. 6. This act shall take effect and be in force from and after its publication in the Kansas register.

Approved May 11, 1996.

Published in the Kansas Register: May 23, 1996.