Q: I have two sons who work on the family farm but have only ever been employees. Now I am getting older I am concerned about their future when anything happens to me, and also how I secure my wife's future. I was wondering about a formal partnership. One of the lads does however have a longstanding girlfriend who is the only child of another farming family, and may at some stage farm there instead. Can you advise me?
A: Only around a third of farming partnerships are understood to have Partnership Agreements, which is a dangerous situation if there are any disputes or a partner leaves or dies.
A business partnership can be likened to a marriage - it starts with optimism but can end in bitter dispute. A Partnership Agreement is effectively a commercial pre-nuptial agreement and a safety blanket to fall back on. As you do not know at this stage whether both sons will continue to work in the business careful consideration should be given to the drawing up of a formal Partnership Agreement. This, supplemented by an appropriate Will, will clearly define the position on the partnership assets and will permit you to share or transfer control slowly.
There can also be inheritance tax relief for both generations as well. Bear in mind if no Partnership Agreement is in place the provisions of the Partnership Act 1890 will apply which takes away your choice and contains many antiquated provisions. An open family meeting preferably attended by your solicitor and accountant is a prudent way forward to discuss the general terms which can be fine-tuned and inserted into the Partnership Agreement. The terms can with the consent of the partners be varied from time to time if required