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‘Partnership agreement’ warning for rural businesses

Rural businesses are being reminded of the importance of written partnership agreements.

Such partnerships can exist where two or more people agree to be in business together with a view to making a profit.

Andrew Holden, head of Rural at regional law firm Napthens, points out there are many examples of farming businesses which would benefit from such an agreement. For instance, where a father, mother and son farm together.

He advises that a properly drafted, written partnership agreement, can have many benefits for those involved and can save thousands if matters later become disputed.

Andrew said: “Partnership agreements can confirm income profit shares and voting rights, as well as issues such as what properties are held as assets of the partnership and what are not. This can be a great help when it comes to inheritance tax if one partner dies.

“They can also be useful if a partner wishes to retire, and provide the surviving or remaining partners with the option to purchase the leaving partners interest in the Partnership, and also over what period the payment must be made, which can be vital to ensuring the ongoing viability of the farm.

“Importantly, a written partnership agreement can also help reduce the chances of a dispute, and provide the mechanisms for how a dispute is to be settled.”

Andrew warned that where no written partnership agreement is in place, a number of issues can arise.

He added: “Where there is no written partnership, the arrangement would automatically dissolve on the death of any one of the parties involved. This would mean all debts would need to be settled, borrowings returned to banks, and the residue distributed between the remaining partners.

“A written agreement can plan for a number of eventualities and stop issues like this from occurring.”

Last year Napthens’ Rural team launched a specialist, fixed-cost service to help farmers plan for the future which includes dealing with partnership agreements. Farm Future offers advice to clients on business, property and family issues with an emphasis on safeguarding the future of a farm and succession planning.

If you require further information, then please do not hesitate to contact a member of the Rural team.

Andrew Holden, Rural Solicitor for Cumbria and Lancashire