Partnerships

In a partnership, two or more people share the risks, costs and responsibilities involved in being in business. Each partner is self-employed and is entitled to a share of any profits. In most instances, each partner shares in the decision-making and is personally responsible for any debts that the whole business has.

If one of the partners leaves the business, dies or is declared bankrupt, the partnership must be dissolved, although the business itself can still continue. Partnerships can involve a 'sleeping' partner who makes little management input into the enterprise, but there may be further tax implications for a partner owning a small proportion of a business.

DairyCo commissioned a report to look into the various options available to producers in terms of contract, share and equity partnership agreements. There is also a number of template contracts whihc are available to levy payers to help them develop their own agreement while having a clear undertsanding of the legal aspects of such contracts.

A farm business partnership often tends to occur when a family member's involvement or contribution to a farming business is recognised by rewarding them with a degree of ownership in the business. A partnership may also be created where a new enterprise, requiring new skills, land, premises and/or financial investment, is formed, or simply where further investment in and expansion of an existing business is made by bringing-in new co-owners occurs. There may also be some fiscal and tax advantages in certain circumstances of the formation of a business partnership. The formation or adaptation of a family partnership can be included as part of farm succession planning for farming families.

A partnership should involve a written contract, which will define terms such as:

  • Who is to make what contribution to the business.
  • How the profits are to be shared.
  • Who is to own quotas and subsidy entitlements.
  • How the partnership may be terminated.
  • What will happen should a split occur.

Partnerships involve a high level of trust between partners and imply a degree of mutual responsibility; they may involve partners being co-responsible for existing debts, for example, whereas other forms of joint business management, such as contract farming or share farming still enable either party to be separately liable for debt and tax and to manage their own separate businesses independently.

As the implications of setting-up a legal partnership, the rights and responsibilities of each party, what they may be liable for and what happens when a partnership is dissolved are complex and wide-ranging it is advisable that sound legal and financial advice is sought before a partnership is entered into. There may be implications for the tax relief available for business partners, for example.

There is potential, with family partnerships in particular, for disputes to easily get out of hand. Communication between partners is essential, as well as recognising individual partner's aspirations for and requirements from the business.

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