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The benefits of a proper Partnership Agreement for farmers

View profile for Susie Mortonson
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The benefits of a proper Partnership Agreement for farmers

The British farming industry has proven its clout during the Covid-19 pandemic, not only as a producer of quality food, but also as a resilient, forward thinking sector which contributes significantly to the British economy. 

As farmers, in these changing times, are focusing on improving methods of production and increasing diversification, traditional family farms are generally good, profitable businesses. It is therefore important for farmers to identify how the business is structured and to ensure this is properly documented. A comprehensive Partnership Agreement could minimise any future conflict and provide a succession plan in order to safeguard the business for future generations to come.

The law states that two or more people carrying on a business together with the intention of making a profit automatically creates a partnership. So in the event of at least two people running a farm, the default structure of the business is a partnership. This is the most common structure for farm businesses in England, with partners usually being family members. More recently, partnerships also include partners from outside of the family, such as when neighbouring farms collaborate to increase the scope and potential of the business. 

In the absence of a Partnership Agreement, the provisions of the Partnership Act 1890 (“the Act”) apply. We are all guilty of hoarding old things (copies of Farmers Weekly from forever ago, baler twine!), but the Act is older than your Grandad’s flat cap and includes provisions which are not suitable for partnerships today.

For example, under the Act, a partnership automatically dissolves on the death of a partner. Banks would have to freeze any accounts in the name of the existing partnership and new accounts would have to be opened. This could be a practical nightmare during an already very stressful time.  

A Partnership Agreement would override the Act and document key issues relating to the running of the farm, therefore providing financial and business stability for current and future partners of the business. It would also provide the opportunity to clarify and document plans for the business and ensure fairness in the event of a dispute. The terms of the Partnership Agreement should tie in with the Will of each partner to avoid any potential conflict over succession issues and maximise tax efficiency.

If you are part of a farming partnership, with a family member or otherwise, ensure you have a Partnership Agreement in place or that the provisions of any existing Agreement correctly reflect the up to date position of the business and the partners. Failure to do so could have nightmare consequences and we know you work too hard to risk that happening.

A version of this article first appeared in the Yorkshire Post Country Post supplement on 19th September 2020

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