Partnership Agreements – a firm handshake or agreed in writing?

Have you ever considered what will happen to your farm business if one of the partners dies or is made bankrupt and you don’t have a written partnership agreement in place? Legally speaking the Partnership Act 1890 will be used which requires all debts to be paid and borrowing returned to banks with the residue being distributed between the remaining partners.  If this isn’t what you had in mind then read on…

In practice in the absence of a written partnership agreement then as long as the remaining partners agree, a new partnership agreement can take over all of the debts and assets of the old partnership so that a sale doesn’t have to take place.

It is always better not to leave anything to chance as a written partnership agreement will reduce the risk of a dispute taking place, as conversations about all of the tricky issues will have taken place and an agreement reached.

Another area that frequently causes disputes is how the assets will be valued in the event that the partnership agreement comes to an end, as there can be a significant difference between the book value of assets vs the open market value. Given the rise in land and property values in recent years this is important to get right for the long term success of the farm business.

Other points to include in the written agreement will be which assets are personally owned and which are business assets belonging to the partnership.  Property which is owned by a farming partnership will be eligible for full Business Property Relief (BPR), however if it is owned personally and used by the partnership in the course of the farming activities then only 50% BPR will be available.  Agricultural property relief is only applicable to the assets used for agricultural purposes and at their agricultural value, which might not be the true market value.

Finally, it is also important to make sure all partners have Wills which are up to date and accurately reflect the points in the partnership agreement.  For example, if land and property is included in the partnership agreement then it cannot be gifted in a  Will, but you can leave the interest in the partnership in the  Will instead.

It is never too late to draw up a written agreement, so don’t leave anything to chance and get in touch today.