Is Your Farming Partnership Legally Binding?

Often partnerships are formed and built on trust over the kitchen table, but have you ever considered the benefits of having a partnership agreement in place, or more importantly the risks of not having one in place?

Partnerships that do not have their own, current agreement will be governed by the Partnership Act 1890, an out-dated piece of legislation that could potentially leave all involved vulnerable.

The act stipulates that each partner is entitled to an equal share in the profits and an equal contribution to the losses. Therefore, if you wish to undertake a different profit distribution method it must be recorded in a partnership agreement.

There are many benefits to having a legal partnership agreement in place where all the business partners are in agreement and adhere to the rules agreed within.

An agreement allows for the election of a managing partner who is responsible for the day-to-day running of the business and can also specify the frequency of partner meetings and the method in how they take place.  This ensures that important business decisions are made in a timely manner and all partners are informed.  By having a managing partner, this allows one person to take responsibility for the businesses day to day running allowing the management of the business to become more effective.

The partnership agreement allows for specific property to be listed and a record generated of who it belongs to.  This can be carried out for land, buildings, specialist equipment and machinery.  This is extremely important in terms of wills, inheritance tax, individual partner bankruptcy and insolvency.  A partnership agreement will take precedence over a will.

Having no partnership agreement in place can leave the business open to cessation if one member dies, retires or becomes bankrupt due to the 1890 Act.  A partnership agreement has the benefit of allowing a record to be kept that defines circumstances in which partners may retire and the consequences of the retirement, death or bankruptcy.

Under the Act there is no power for one partner to expel another, even if one partner is performing poorly or neglecting to perform his duties.  By using a partnership agreement, this can allow for a majority vote to expel another partner in defined circumstances, therefore protecting the business and the profits.

All of the above risks and benefits illustrate that a partnership agreement is a necessity within a business and especially within a farming business.

If you are unsure about your current partnership agreement status or would like further information on preparation of a partnership agreement, please contact or your local FCG office.

Posted in Business Management, Gloucester.