Top tips for food partnerships

21 August, 2017

Here’s our top tips if you’re operating your food business in a partnership. Partnership text

Many farmers or others involved in food businesses trade together in partnership.  This can be an efficient and flexible way of running a business when it works well, but all too often people get on with running their business, without giving much thought to what being in a partnership actually means. 

What is a partnership?

Firstly, it’s important to consider whether or not you’re in a partnership.  A partnership is a collection of individuals carrying on a business in common with a view to making a profit.  It isn’t essential that the business actually makes a profit, but this must be the desire or intention.  Taking the example of two brothers who are arable farmers, who own two fields that were passed to them following their father’s death and who buy their raw materials together and sell their crops to the same buyer – they are almost certainly trading as a business partnership. 

What does this mean?

Unless you’ve agreed otherwise, the terms set out in the Partnership Act 1890 (the Act) apply to partnerships.  It’s best practice to have a written partnership agreement setting out how the business should be run and how any disputes should be resolved.  

Things to think about and try to agree if you’re in a partnership

  1.  How are the assets / proceeds divided?

    It seems simple, but often the partners in a business have a different view as to what they believe is their personal asset and what belongs to the partnership.  In the above example, is the farmland a partnership asset?  What about if one of the brothers buys a new tractor?

  1.  Succession / family planning

    What will happen if one of the partners dies?  Under the Act, the partnership would be dissolved and farmland / buildings that have been in the family for generations could end up being sold.

  1.  Can my children take over my interest in the business?

    Unless all the other partners agree, you can’t retire from a partnership and appoint your children in your place.  The default position under the Act is that the original partnership would be dissolved and it’s important to consider and agree on how the partnership should change over time.

  1.  What if there is a disagreement?

    The fallout from any disagreements, especially within a family business can be catastrophic.  Having an agreed process of resolving any disagreement can help keep the business going (and money coming in) when a dispute arises.

What should I do next?

Even if you think your partnership is working well, it’s sensible for all the partners to sit down and consider how the business should be run.  Planning for the future can help avoid any potential disputes and keep the business going for generations to come.  For further advice on your partnership or if you have a partnership dispute please contact Tom Bourne on 01892 506099 or tom.bourne@crippspg.co.uk.