Partnership agreements - a burdensome necessity?
It is commonplace for farming families to work together as partners both for practical and accounting reasons. It is less commonplace for such working arrangements to be formalised in a written agreement.
However, if you and your partners do not have a formal agreement, the Partnership Act 1890 dictates how certain issues will be resolved. This will almost inevitably mean that the position between you and your partners is not as you expected or intended.
What if there is no partnership agreement?
If no written partnership agreement is in place and one of the partners dies, becomes bankrupt or leaves the business, the partnership will automatically cease to exist. A consequence of this could be that a Bank may elect to freeze the partnership accounts until matters are resolved. Clearly, this is not a desirable outcome for the remaining partners.
A partnership agreement details when a partner can retire or be removed, what share each of the partners is entitled to in the assets and profits / losses of the business, and how much time each partner is expected to devote to the business, amongst other matters. In the context of a fall out, it can be impossible to get agreement between partners on these issues.
Should we consider having a partnership agreement?
What may seem to be an uneccessary exercise / expense for a partnership business now, is likely to be invaluable going forward as it will set out terms dealing with all eventualities that life may throw at the partnership in the future.
Your accountant and solicitor can put an agreement in place (or update an exisiting agreement) for you. It will be time and money well spent.
About the author
Senior Associate Diane specialises in agricultural land and property sales.
Published: Thursday 7th August 2014