In the majority of cases, businesses who operate under a farming partnership will not have a written agreement in place formalising the relationship between the individual partners.
In these circumstances, the partnership is regulated by the Partnership Act 1890 which invokes a whole host of implications that people simply do not realise. For example, if a partner passed away, or there was a fall out and one left, the business would dissolve automatically. It also imposes equal division of profits and losses, which is not always desirable given people’s differing tax circumstances.
A farming partnership arrangement can bring some simple but vital benefits, including regulating the relationship between the partners and implementing succession planning.
We have frequently seen this work well where there are two or more generations working in a family business. Over a period of time, that relationship and the business ownership inevitably needs to change. However, there are often fears about the timing of bringing in additional partners, especially if there are concerns surrounding the potential for divorce or separation.
A well-worded arrangement can offer the necessary level of encouragement to the younger generation but balance this with sufficient protection of the assets that the older generation have worked hard to build up.
We can also remove property ownership from the balance sheet of the business and limit an individual’s share so that in the event of divorce or similar breakdown the business is protected.
In another common scenario, land ownership may be sat on the balance sheet of a partnership, so that when a third party or next generation is brought in, they immediately become an equal owner, which may not be the right move for the business at that time.
There are certain issues we can foresee and counter by putting a comprehensive agreement in place. We work very closely with agribusiness accountants to ensure all of the interests of the partners are considered and integrated within the written agreement.