Farmers Weekly’s Business Clinic experts offer free advice on legal, finance, tax, insurance, farm management and land issues. Here Robert James – Solicitor, Thrings – offers guidance on what to do when a farm partnership breaks down.
Q: I farm in partnership with my two brothers but we’ve fallen out about decision-making and control of the business. They are trying to marginalise me out of the management of the business. We have no written partnership agreement in place and I’m not sure what course of action is available to me or where I stand legally?
A: Situations like yours are far too common. It highlights the importance of formalising the partnership terms (and partners’ respective rights, powers and duties) in a formal written partnership agreement. In the absence of a written agreement, your relationship with your brothers will be primarily governed by the Partnership Act 1890 and related case law.
Generally speaking, this act says that each partner is entitled to take part in the management of the partnership business. Accordingly, there is no legal basis upon which your brothers can reasonably marginalise you from participating in the decision-making process.
Saying that, normal day-to-day decisions concerning the running of the business are based on a majority decision. Therefore, if you are outnumbered, your brothers will be able to push through with ordinary matters against your will.
Nonetheless, any decision relating to a major issue such as changing the nature of the business will require a unanimous decision. Unless a unanimous decision can be reached, or if there is deadlock, the general position is that the status quo should be maintained.
Robert James, solicitor, Thrings
One consideration in your favour is that your brothers owe you a duty of “good faith” in relation to the dealings of the business. This gives you some form of protection.
In essence, the duty of good faith means that your brothers should not place themselves in a position where their personal interests conflict with their duties as your business partners (the “non-conflict” duty) and your brothers are not allowed to profit from their position (the “not for profit” duty).
That is not to say that they are not allowed to be remunerated or take drawings from the partnership, rather they are not allowed to make a business decision which primarily benefits them in their personal capacity to the detriment of the best interest of the business.
Where there is clear tension between partners, and a distinct lack of communication, it is sometimes difficult to ascertain the full picture. This is especially the case if your brothers are, in effect, colluding.
Thankfully, section 28 of the Partnership Act 1890 places a duty on your brothers to provide you with true accounts and full information concerning all matters affecting the partnership. Similarly you are entitled to have full access to the partnership books.
If you feel the state of your relationship with your brothers is irreparable, then it may be sensible to consider ending the partnership. Your brothers (even as a majority) have no right to expel you against your will from the partnership in the absence of an express right set out in a partnership agreement – which is seemingly not applicable here. Rather, the only solution would be to dissolve the partnership in its entirety.
Upon communicating your intention to dissolve the partnership, it may be that you can agree the terms of the dissolution amicably between yourselves. For example, your brothers may wish to buy your share of the partnership.
If it could be demonstrated that the business was a “partnership at will” (which is very fact-sensitive) then a mere notice would suffice to dissolve. In the absence of either of these, it is likely that you would need to make an application to the court for dissolution.
Following an order for dissolution, the business would be wound-up and any remaining assets/profits distributed in accordance with your capital and profit sharing ratios. Your options are not without complexity, and you should certainly consider independent legal advice before taking any formal action.
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