Why do I need a written partnership agreement?

Year Published: 2017

Without a good partnership agreement, you’re opening yourselves up to real problems and cost when there is a disagreement in the future. Even if there are no disagreements, by structuring the partnership in the right way you will also be able to maximise relief from inheritance tax.

A partnership can be created by verbal agreement and conduct of parties, e.g. how each party acts within the partnership. Where a partnership isn’t in writing, the gaps are filled in by the Partnership Act 1890. As you can imagine this might not fill the gaps as you would expect it to. Even if you have good accounts, a recent case (Ham v Bell) confirmed that these are ‘only evidence’ and do not necessarily prove agreement.

There have been a number of cases recently where partners have had to go to court to agree what was intended by their partnership because they didn’t have a written partnership agreement which covered all of the important points. This is particularly costly and can cause years of anxiety, which will also affect the running of the farm.

We recommend that you sit down and decide what should be part of the partnership assets, how profit should be allocated each year and what should happen when a partner dies or decides to leave, to name just a few. This will give you peace of mind and hopefully save you money in the future.

Share This: