Farming Partnership Agreements – why they are so very important
A farming partnership is created automatically when two or more people decide to farm together to make a profit. Without a farming partnership agreement, such a partnership is regulated by the Partnership Act 1890.
The Partnership Act gives all partners equal voting rights, equal responsibility for losses and equal shares of the profits. If a partner dies, the partnership must dissolve creating business disruption and tax implications. If a new partner wishes to join the partnership, agreement from the other partners must be unanimous.
Why choose a farming partnership agreement?
Farming businesses are unique. They are often multi-generational, and include assets like family homes. Partners often work and live side by side, and there can be a lot of emotion and history involved.
Farming businesses are often based on informal information, verbal promises, outdated documents, and sometimes a combination of all three. This may be fine, when all is going well. But when things change, or there is a problem, a lack of clarity over the structure of the farming business can be damaging and legally expensive to sort out.
Most commercial businesses wouldn’t run without a shareholder or partnership agreement, and a farming business shouldn’t be any different.
What’s in a farming partnership agreement?
Written farming partnership agreements are legally binding documents between two or more people who agree to share responsibility for running a farm.
They define:
- the business
- the partners
- their rights and obligations
- decision-making and management roles
- what assets are included
- how the partnership might end, including whether the partnership continues after the death of one of the partners
- how profits and losses are divided
- liabilities and tax responsibilities.
Advantages of having a farming partnership agreement
A farming partnership agreement can:
- reduce risk
- improve resilience
- offer clarity to all
- make difficult conversations easier
- be flexible
- ensure the farming business is tax-efficient.
A farming business agreement is essential to ensure the smooth running of the farm, whether it expands or goes through a period of difficulty. When a partner dies, an agreement explains how the farm will continue to operate. As with many legal documents, it is advisable to look over the agreement every few years to ensure that it is still adequate for the business’ needs.
If you need more information on farming partnership agreements, please contact Umberto Vietri, email umberto.vietri@awbclaw.co.uk.
