Make partnership agreement clear
MANY farmers farm in partnership, usually with other members of their family. But most have no written partnership agreement, preferring to rely on trust and family loyalties. Of those who do have a written agreement, few have reviewed it to reflect changing circumstances.
A well-drafted agreement is super to keep in the bottom drawer when things are going well but is essential to determine the rights and liabilities of the parties when things go wrong. It is particularly important for the partner who wants to continue farming when his fellow partners do not.
There is no need to have a written agreement to set up a partnership. If, however, there is no written agreement, the dissolution of the partnership is governed by the Partnership Act 1890 which is something of a blunt instrument. In most cases following a dissolution, the assets must be sold even when one partner wishes to continue and is willing to buy out the others. There are limited circumstances in which the court will override the right of the outgoing partner to see the farm sold.
There are many cases in which this can operate unfairly. One common scenario can be particularly heartbreaking. That is where a father has brought his children into partnership, both to bring them on in the business but also to be able to pass the farm on to them in the most tax-efficient manner.
If the partnership agreement is not properly drafted, there may be nothing to prevent those children from deciding that they would like to have cash rather than the business opportunity. They can serve a notice of dissolution upon their father and force the sale of the farm which he was seeking to protect for future generations.
Equally heartbreaking is when the father has all but retired and his offspring have worked hard and long to improve the farming business only to find that their father decides to dissolve the partnership and sell the farm.
All of these difficulties can be avoided by a partnership agreement. Two particular devices are often employed to ensure that the partner who wishes to continue farming can avoid a sale of the partnership assets and buy out the interests of his co-partners over a period of time.
The first device is an "automatic accruer" whereby upon the retirement of a partner, the farm vests in the continuing partner who then pays off the outgoer. The second device gives the ongoing partner an option to buy out the interests of the outgoing partner.
There are clearly advantages and disadvantages with each type of device but a least they avoid the sale of the farm and level the playing field between the farmer and the outgoing partner in price negotiations.
All of the above assumes that the farm itself is a partnership asset. It is of course perfectly possible to keep the farm outside the partnership. A land owner can make a farm available to the partnership in which he is a partner but retains ownership.
If that is what is required, great care must be taken to ensure that the farm is not inadvertently brought into the partnership. Very often when a father brings offspring in, the opening accounts for the partnership are the closing accounts for his sole trader business. They are sometimes, "copied across" and one often finds that the farm is on the balance sheet. Later the father may say that he did not intend the farm to be an asset of the partnership but the offspring could argue to the contrary.
For the protection of parents and children being brought into a partnership, advice and thought at the outset can save much cost and heartbreak should things go wrong.
ROYAL TICKETS -SAVEATHIRD!THIRDOFF
ARE you ready to farm in the 21st century? Make sure your business is in the best position to cope with the challenges ahead by visiting the 1999 Royal Show on 5-8 July at Stoneleigh in Warks.
Firmly established as Europes premier exhibition of farming, food and the countryside, this years Royal Show emphasis is on practical, take-home messages for the modern farmer.
More than 7000 animals from the finest pedigree livestock to rare breeds will be competing for a coveted first prize in the shows world-famous competitive classes sponsored by its major backer, NatWest.
The show will highlight the latest issues affecting farmers in the Sheep Technology Centre and the Commercial Beef Focus sponsored by Marks & Spencer and Merial. Advice and information is available on topics from cost-effective feeding and reducing overheads to selecting superior breeding stock and delivering what the market wants.
Marks & Spencer is sponsoring the Royal Show National Lamb Carcass Competition and the Special Prime Lamb Competition to demonstrate best production practice.
NIAB focuses on the 1998/99 recommended list of varieties and next years candidates in its display of 26 wheat varieties. SIMAC looks at what GMOs really mean for the farmer.
Advice to help meet the demand for home-grown organic produce is at the Organic Food and Farming Centre, with an emphasis on mainstream organic farming to help producers assess if conversion is right for them.
Over 40 acres of the showground is devoted to the top names in high-tech machinery, with everything from tractors, combines and milking machines to sprayers, spreaders and ATVs.
A new collaboration with major research institutes and commercial companies on the RASEs Precision Farming Feature looks at the need for farmers to identify the clear economic and environmental benefits of the latest technology and to assess its value on farm.
Farming and Countryside
Taking as its theme "How you can afford to be green when youre farming in the red", the RASEs Farming and Countryside area, sponsored by Hydro Agri and Lloyds TSB, highlights the issues of environmentally-appropriate farming systems.
Tips on the latest developments in integrated farming systems, arable stewardship options, field margin displays and the right approach to conservation headlands can also be found from a range of experts including the Environment Agency and MAFF.
From the finest British food and international cuisine to top horse riders and rural crafts, the 1999 Royal Show has plenty to offer the family for a great day out. It will help you and your family make the most of your business.