Everything You Need to Know About Family Farm Partnerships

What is a Farming Partnership Agreement?

A farming partnership agreement is an understanding between two or more people — often family members — that they intend to operate a rural business together. Although written agreements offer much more legal protection in the event of disputes, farmers often only have verbal agreements. Written contracts offer extra clarity by fully outlining the ownership of assets and land.

It’s important to note that there is no legal requirement for a written agreement to exist between farming partners. This means that solely verbal partnerships would be governed by the Partnership Act of 1890. This legislation might not encompass the realities of modern farming, so would offer limited recourse if the partnership ever came into conflict.  

Setting Up a Farm Partnership — What to Include

A partnership agreement will primarily outline the ownership of assets and land within a farming operation. It will also set out what happens to any profits or losses made by the business, and what happens in the event of dissolution. Finally, it should include financial information and the mechanism for making changes to how the business operates.

The following essential information should be included:

• A full inventory of the partnership’s assets and who owns them
• An explanation of how any profits and losses relating to land will be handled
• Details of how profits will be shared and when they can be drawn on
• Contingency plans regarding the future of the business should a partner die, leave, or request that the partnership be dissolved
• Plans for who controls bank accounts and the process for how partners will agree to withdraw funds or make investments
• The mechanism for handling disputes between partners

Because every farm operates in its own way, there is no set formula for creating a farming partnership agreement. Therefore, if you’re keen to enter into one, it’s important to seek trusted legal advice that is tailored to your unique goals.

What Are the Benefits of Family Farm Partnerships?

Fully documenting terms and conditions is the easiest way to provide clarity between business partners — and farms are no exception to this. A written agreement minimises the likelihood of protracted disputes, improves your chances of securing credit, and lessens the risk of outdated legislation being applied to the partnership further down the line.  

Family farm partnership agreements make clear who owns what, and how and when profits will be shared. This gives all parties a clear point of reference for the duration of the partnership. They should also outline the process for handling inter-family disagreements, with this framework ensuring that any disputes are resolved more efficiently. 

Without a written agreement, there is a significant risk that the death of a partner could result in the immediate dissolution of the partnership. This would leave the remaining family members liable for any debts and loans. Some banks will even refuse loan applications unless there is a formal partnership agreement in place.  

Dissolving a Farm Partnership

In the event of a dispute, dissolving a farm partnership could be your only option. The mechanism for this could already be outlined in your farming partnership agreement. Otherwise, it is advisable to find an amicable resolution that works for the partnership. If the collaborative approach is impractical, you would need to apply to the courts for a dissolution.

One of the most common strategies for dissolving a farm partnership is for the remaining partners to buy out another party’s share in the partnership. Following dissolution, assets would be divided in line with the written agreement.

Any attempt to extricate yourself may prove to be complex, especially if the terms of the partnership are not outlined in writing. The involvement of a specialist agricultural solicitor will make it much easier to take stock of your options and reach a positive outcome.

Whether you are part of an informal farming partnership, or want to dissolve a long-standing agreement, it’s important to obtain reliable legal guidance. Working with a law firm that has a demonstrable understanding of rural challenges and opportunities is often the best route to a reliable strategy and successful outcome.

Thursfields is a full-service law firm that has years of experience in helping individuals and rural businesses. We’ve built a specialist agricultural and rural team whose members have in-depth knowledge of the industry and the unique challenges it faces. This enables us to provide you with targeted advice which gets to the root of your issue and brings it to a suit and satisfactory resolution. 

We offer an in-house service that covers everything from family law and estate planning to corporate interests and real estate. This wide offering helps us to provide a service that takes care of everything at the same time — so you can be completely confident you’re receiving the highest level of service.

Because we’re built around you, we take the time to understand your unique situation and goals. Our results-driven team will then devise a bespoke strategy that is designed to deliver your required outcome as hassle-free as possible.

If you are seeking astute guidance and insights for a wide range of objectives, we can help. The involvement of our solicitors has often been crucial in securing a positive result for our client, which is why we’re regarded as one of the country’s leading full service law firms. 
To find out more about our services, contact our team today.