If your farming partnership business operates without a written agreement (or your existing arrangement has not been reviewed or updated for some time), you should consider putting in place a new farming partnership agreement (FPA).
This article considers some of the key legal benefits of putting in place a new FPA (or reviewing your partnership's existing terms, in case updates are required).
Terms within an FPA cover a range of matters and we can help put in place an agreement reflecting your partnership's existing practices, with sufficient flexibility without imposing additional/cumbersome restrictions on its operations. We also work closely with a partnership's accountant in relation to the accounting and tax terms.
Often, putting in place a new FPA aligns with wider succession planning and you may wish to see our separate article on succession planning for farming businesses, found in our agriculture and rural estates newsletter from Spring 2024. Our private client team can also assist with putting in place or reviewing partners' Wills, as it is important these align with the terms of the FPA.
Key benefits of putting in place a new FPA
- Certainty of terms: a new FPA should clarify how the partnership operates and the nature and ownership of property used by the partnership. Should certain operational decisions be made with the consent of a certain number of partners? Are assets of the partnership to remain the separate property of individual partners? Our property team can also work with you and your accountant regarding changes to partnership property ownership, alongside putting in place a new FPA.
- Continuity of partnership: an FPA can ensure the partnership continues after the death or retirement of a partner. The default position under partnership legislation is otherwise that death or retirement of a partner terminates the partnership. An FPA can avoid (and future proof) this scenario. With succession and future proofing in mind, you may wish to add your children as new partner(s).
- Unequal share of capital and profits: the default position under partnership legislation is all partners are entitled to share equally in the capital and profits of the business and must contribute equally towards the losses. It may be that your partnership requires unequal shares of capital and profits between partners, which the FPA can provide for.
- More tailored provisions for the commercial practices of the partnership: the FPA should reflect existing (or put in place new) practices in areas such as the partnership's financial arrangements (e.g. how income profits and losses and drawings are to be dealt with) and decision making (e.g. what matters require all partners to approve to allow them to take place, such as the sale/acquisition of property or the purchase of a capital item above a certain amount).
At Trowers & Hamlins LLP, we have extensive experience to review, amend or put in place new farming partnership agreements for farming businesses. We are very happy to have an initial conversation to discuss your existing arrangements and how we can help. Please do get in touch if you would like to discuss this further.
