Partnership agreements are, without doubt, the most common business structure for farms in the UK.  Partnerships are often undocumented and a bit of mystery, used by families solely to divide farm profits.  Anyone farming in a partnership should fully understand the limitations and benefits of such arrangements and insist on clear written documents to capture key terms. 

Here are some points to consider when you are reviewing or looking to formalise a new trading farm partnership:  

• A farm partnership is not a separate legal entity, so cannot own assets or liabilities itself, these are owned by the partners. If you are looking for a business which can hold it’s own assets or liabilities, a Limited Company or a Limited Liability Partnership might be a better option.   

• Always have a written partnership agreement – it doesn’t matter if the business has been trading for some time. Template agreements can be provided by solicitors and can be put in place even if you have been trading for some years already. It is always a good idea to consult the partnership’s accountants to ensure the partnership agreement effectively reflects the business’ trading.  

• What should you should include in the partnership document:  
  • Who are the partners in the business, and what percentage of the business or assets does each own?  
  • How is any profit made by the partnership divided between the partners?  
  • How should the business be run?  
  • The name of the bank and account details for the partnership’s bank account 
  • A process for large decisions – do transactions over a certain amount need to be counter signed?  
  • What is the process for bringing in a new partner?  
  • What is the process for making changes to the partnership agreement?  
  • What is the process if one of the partners dies, wants to retire or to leave the partnership?  
  • How can disagreements be settled?*  Add some words to provide a simple and cost effective dispute resolution procedure.
  • In the event the partners want to end the partnership – what is the process?* 
  • On what basis are the partners assets bought in to the business and used by the business?  
  • Who is the trading partnerships accountant.  

*Where disputes arise it is useful to include a third party who can act as an independent mediator for the partnership to resolve issues outside of the courts in a more time and cost-effective manner. 

Most importantly a partnership agreement is really just a contract between the parties.  Templates can, and should, be adapted so they work for you.  Seek specialist support to make sure all the key issues are covered for your own specific situation. 

At Wilson Fearnall we have advised all types of rural businesses on how best to set up their affairs to ensure fairness and transparency.  We can work with retained accountants and legal advisors or suggest experienced specialists as required.  We have also helped resolve a number of disputes between farming families where arrangements have not been properly set out and recorded.