As a commercial firm representing a large number of farming business this is a question often asked by our clients.
Unless there is a partnership agreement in place the relationship between the partners will be governed by the Partnership Act 1890. This Act is 125 years old and unsurprisingly is not fit for purpose in a modern day farming business.
Take for example what would happen if a partner sadly dies or if one partner says they want out of the business? At that moment the law says that the partnership has stopped and unless the partners can reach a compromise fast the business should be wound up or sold.
Even where compromise is reached to keep the farm business intact, the immediate aftermath of a partnership being legally dissolved can still be financially difficult for all involved. All partnership bank accounts could be frozen by the bank until a new partnership can be formed and new finance arrangements put in place. During this time cash that is needed to keep the business going is locked up.
The solution is a properly drafted partnership agreement that allows the partnership to survive the death or retirement of a single partner. It can also provide clarity on whether the farm itself is or is not owned by the partnership – a question often critical for any Inheritance Tax planning – as well as address day to day matters such as who has authority to spend money, borrow money and take on staff on behalf of the partnership.
For more information you can contact Jennifer Grabowski on 01524 846846 to discuss how best to protect your partnership’s business.