Legal Advice: Is a partnership right for our farm?

There are pros and cons to a farm partnership agreement; make sure you know what you're getting into, legal expert Karen Walsh explains

A farm partnership is where two or more farmers combine their farming operations into one business. Picture: iStock

Dear Karen, 

Recently, my wife and I have started succession planning for the future. We have been looking into the best ways of transferring our tillage farm to our two sons when the time comes. We want to make the transition as smooth as possible and have noticed one potential option is to establish a farm partnership. What would a farm partnership involve and what are the benefits in relation to succession planning?

Dear Reader,

Farm partnerships are an excellent idea for those planning for the future of their business.

A farm partnership is where two or more farmers combine their farming operations into one business. 

Partners will share profits and resources, such as land, labour, facilities, machinery, etc. Farming partnerships are very common amongst family members and are an excellent first stepping stone towards eventually transferring the family farm.

There are many benefits for business owners who opt to enter into partnerships.

Notably, the shared responsibility and workload lessens the burden placed on farmers, who not only have to man the farm but also manage the business.

However, one of the main benefits is the use of a partnership as a transitional arrangement to steer the farm family through the succession process until a full farm transfer to a son or daughter takes place at a later date.

A partnership allows for a gradual introduction of the successor, in a formal way, into the farming business over the lifetime of the arrangement, allowing for a smooth transition when the farm does pass hands following the death of the landowner.

So, what should you consider before entering into a farm partnership?

The most fundamental aspect of entering into a farm partnership is to have a well-written agreement. It is insufficient to have an oral arrangement and a handshake. The only way to protect your business and your interests is to have a comprehensive agreement in writing.

It is a matter of critical importance to have a well-drafted partnership agreement, which clarifies precisely how the partnership will be formed, operated and dissolved. 

Note that, should partners fail to draft a legal document clearly setting out the terms of their agreement, the partnership will be governed by the Partnership Act 1890 – an archaic piece of legislation that is not tailored to farming specifically.

The partnership agreement must be signed by all partners, and each signature should be witnessed by a suitably qualified person. 

Furthermore, in the natural lifetime of a partnership, the arrangement can change. It is vital, therefore, that the partnership agreement be updated on an ongoing basis.

It must be noted that farm partnerships have unlimited liability. Partners will be jointly and severally liable, meaning that should a person be harmed or wronged, including financial institutions, they can effectively sue some or all of the partners to recover damages.

This makes having a well-written agreement even more crucial as partners can insert clauses into their agreement to mitigate and limit their liability in certain situations.

Those seeking to establish a partnership should also bear in mind the importance of putting in place a will.

I recommend that you seek independent legal advice and would also advise that you consult a tax adviser to ensure you are aware of the tax implications.

• Karen Walsh, from a farming background, is a solicitor practising in Walsh & Partners, Solicitors, 17, South Mall, Cork (021-427 0200), and author of ‘Farming and the Law’. Walsh & Partners also specialises in personal injury claims, conveyancing, probate and family law.

Email: [e-mail] Web:  www.walshandpartners.ie 

While every care is taken to ensure accuracy of information contained in this article, solicitor Karen Walsh does not accept responsibility for errors or omissions howsoever arising, and you should seek legal advice in relation to your particular circumstances at the earliest possible time