i talked to a farmer recently who was telling me about the farm that he and his siblings will inherit. the dad of the siblings lets the active farmer pay a discounted cash rent, but that’s not going to work for the other siblings after dad passes. for a corporation, it’s called a shareholder agreement, and for an llc it’s typically called an operating agreement. sometime down the road, they reach a deadlock on a key business decision or someone wants out of the business. one of them will approach me with the question, “what do we do now?” i will ask, “what does the partnership agreement call for?” the answer is normally, “we don’t have one.” the look on his or her face is embarrassment and dread. no one goes into a partnership expecting to have a $1 million disagreement with his sister, cousin, or best friend. no one goes into a partnership expecting to have a divorce, car accident, or personal bankruptcy.
if you sit down and think about possible partnership problems, you can cover most of them with a written agreement, which should be reviewed by a lawyer. besides delineating rights and responsibilities for the partners themselves, there are other parties who are interested in the agreement. in a divorce case, the attorneys and judge will want to see the agreement. new partners enter into the operation, and old ones leave. for these reasons, you will want to review the agreement every few years. one of my partners likes to have spouses sign partnership agreements, too, to be sure that all interested parties are aware of the rights, responsibilities, and duties of the partners and their heirs. to see all exchange delays and terms of use, please see /solutions/terms.
even if you run it as a family farm, where two or more people carry on the business with a view to profit, it could automatically be established as a partnership. therefore, it is important to note that if you and other members of your family have started farming together, a partnership business relationship may have already been formed. in the absence of a written agreement, a partnership for your farming business may already exist. it is also common for banks to insist that you have a written agreement. otherwise, under the partnership act, if a partner dies, the partnership will be deemed to have dissolved, which is very impractical and can lead to the bank freezing the accounts of the business.
a properly prepared written agreement for your family farming business will help ensure it correctly reflects the ownership of the business between family members and the division of assets. to discuss the structure of your rural business or to prepare a partnership agreement for your family farm, please contact harrison drury’s rural sector team on 01772 258321. notify me of follow up comments via e-mail. please note: blog comments will be public on submission harrison drury & co limited is a limited company registered in england and wales with company number 7028711 and whose registered office is at 1a chapel street, preston, pr1 8bu. any reference to a partner in connection with the business of harrison drury & co limited is a reference to an employee, consultant or agent only and such reference does not denote that the individual is a partner in any partnership for the purposes of the partnership act 1890 or otherwise, nor the existence of any such partnership. a full list of directors is available for inspection at the registered office. as part of our service to you, we will continue to collect, use, store and share your data safely and securely.
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