Farming families must put in place a clear partnership agreement if they are to avoid potential problems in the future, warns Ian Garfield, partner at BPE Solicitors.
Current partnership law dates back to 1890 and, among a range of onerous limitations, makes every person working in a business jointly liable for the other partners’ debts. “In the absence of some arrangement to the contrary, anyone working together with a view to making a profit is a partner in the business,” he said.
Speaking at a recent South West Rural Update event at the Royal Agricultural College, Cirencester, Mr Garfield said the old law meant partners could not be expelled from the business, would all take equal shares of the profits, and would all have to agree to any change in business practice.
“In the absence of another agreement, children who help out on the farm could find themselves liable for their parents’ debts – even friends and neighbours could become partners in the same way.” However, the law could be easily over-ridden by creating a formal business structure, setting out individual parties’ rights and responsibilities.
“It doesn’t have to be legally drafted, but it can help give certainty to anyone working in the business – and can motivate the younger generation to become more involved,” said Mr Garfield. “For example, you could incentivise younger family members by offering them a growing share in the business as they develop their skills.”
Ring-fencing personal debt and assets would also provide greater security for all members in the business, he added. “If you’re in a partnership and something goes financially wrong, your house, cars and so on could be at risk. An alternative to protect those assets would be to incorporate to a limited company, or form a limited liability partnership.
“Having that protection could make coming into the business more attractive for the younger generation. Sit down and discuss the how, when, why and why nots – it will make working together easier for you and for them, which is in everyone’s interest.”