Is it time to think about a farm partnership?

Having a well-drafted written partnership agreement is critical. There is always the potential within family partnerships, in particular, where disputes get out of control, writes rural solicitor Karen Walsh.

Having a well-drafted written partnership agreement is critical. There is always the potential within family partnerships, in particular, where disputes get out of control, writes rural solicitor Karen Walsh.

Dear Karen,

I am thinking of giving the lands to my son in the next few years before he turns 35, the cut-off point for claiming the Young Trained Farner Relief in respect of Stamp Duty. 

I would like to do something before then, maybe to ease him into taking over the farm in full. I heard a farm partnership is a good idea How do I go about putting a farm partnership in place?

Dear Reader,

A Farm Partnership arises when two or more farmers combine their farming operations into one business. Most often, Farm Partnerships are formed between family members as a stepping stone to the ultimate transfer of farm ownership to the next generation.

A registered family Farm Partnership is one possible option to consider as part of the succession planning process. Parents may have different reasons for delaying the transfer of the farm to a child, and these reasons often revolve around concerns such as family farm income and security for the parents and other family members who still have to be provided for.

In a registered partnership, the parents do not give up control of the farm; they share it with the son or daughter. They retain ownership of the assets, such as land, buildings and entitlements and the assets are licenced for use by the partnership, but only for the duration of the partnership. Assets such as stock and machinery are transferred to the partnership, and, as a result, they become partnership assets.

The partnership allows parents the opportunity to see how their child will adapt to the partnership to utilise their agricultural training and knowledge on the farm while working on the farm with shared decision-making and management. It will also allow the parents to retain some control over the farm and to share their experience and knowledge with their future successor.

It is a transition arrangement to steer the family farm through the succession process until the full farm transfer to a child at a later date takes place. It allows for gradual introduction of the successor in a formal way into the farming business over the lifetime of the arrangement.

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. 

Having a well-drafted written partnership agreement is critical. There is always the potential within family partnerships, in particular, where disputes get out of control.

Some of the most important provisions that should be included in a partnership agreement should be the definition of the activities to be included in the partnership, the names and addresses of the parties to the partnership, the percentage of ownership of each partner, the definition of profit sharing ratios, procedures for resolving disputes, details as to who can bind the partnership and legal agreements and contracts, the duration of the agreement, details identifying resources and capital being provided by all parties and details as regards to establishing bank accounts and the herd number, details of how accounts are to be prepared and the makeup of the capital account and details on repayment of capital.

This is not meant to be an exhaustive list, and a solicitor should always be consulted in advance of entering into a partnership or signing a partnership agreement. A registered family Farm Partnership is one possible option to consider as part of the succession planning process. 

Registering the Farm Partnership also allows the partners to avail of certain tax credits and grants.

The registration of a Farm Partnership is governed by the registration of Farm Partnerships Regulations 2015. Some of the requirements are as follows:

• The partnership is engaged in the trade of farming.
• The partnership consists of at least two persons but not more than ten persons.
• At least one partner in the Farm Partnership shall be a person who has been engaged in the trade of farming on land owned or leased by that person consisting of at least three hectares of usable farmland for at least two years immediately preceding the date of formation of the Farm Partnership.
• Where only one partner satisfies the requirement referred to in the point above, at least one other partner has an agricultural qualification and holds an entitlement to at least 20% of the profits in the Farm Partnership profit-sharing arrangement.
• The partnership agreement is in writing.
• The partnership agreement operates in accordance with the Partnership Act 1890.
• The partnership agreement must cover a minimum period of five years.

There is also a grant available for setting up registered Farm Partnerships, which can be claimed after the professional fees have been paid and the partnership has been established.

Karen Walsh, from a farming background, is a solicitor practising at Walsh & Partners Solicitors, 17 South Mall, Cork, and 88 Main Street, Midleton, Co Cork, and also the 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 effort is taken to ensure the accuracy of the information contained in this article, Karen Walsh does not accept responsibility for errors or omissions howsoever arising. Readers should seek legal advice in relation to their particular circumstances at the earliest opportunity.