Did you know that 25% of all marriages in Ireland now end in separation or divorce?
Did you know that the number is closer to 90%, for business partnerships?
Generally, you spend more waking hours at work than at home — which means more opportunities to interact with your business partner.
And the nature of your interactions tends to be more intense, with more potential for conflict, and many external variables beyond your control.
When your marriage is on the rocks, work can be a respite. But if your workplace becomes hostile, there is no escape. You still have to farm and conduct business as usual, even when faced with a floundering relationship.
This is why you must choose your partner wisely. You must get to know them before going into a farm partnership together, and then work constantly to build trust and good communication. In business as in marriage, there are no guarantees, and it is easier to avoid mistakes than it is to get out of them.
Business partners often start businesses together with little planning and few ground rules. Sooner or later, they discover the hard way that what is left unsaid or unplanned often leads to unreasonable expectations, anger and frustration. Partners can clash over countless things, including conflicting work ethics, financial goals and leadership style.
Everybody knows that in all relationships, communication is essential. So, before you go into business, you need to enter into what is known as a partnership agreement, to protect yourself and your farming business.
In cases where there is no partnership agreement, or where the agreement is void, the partnership will be governed by the Partnership Act, 1890. Yes, that is the year of the Act, 1890! You read correctly.
That is all the more reason to ensure you put a partnership agreement in place. It is shocking that an archaic piece of legislation, more than 120 years old, can determine how 21st century partnerships operate, if there is no valid partnership agreement in place.
Its effects are unexpected and can be disastrous. For example, there is no right of expulsion of a partner, no matter how inappropriate the conduct. This must be addressed in a partnership agreement.
When a partner announces their intention to retire or leave, the first course of action should be to refer to the partnership agreement. A well drafted partnership agreement will also ensure that the other partners have a carefully structured plan to follow, if one partner becomes seriously ill or dies.
It will secure everyone’s legal positions, and ensure the continuity of the farming business.
Inserting retirement provisions into a partnership agreement holds a balance between the interest of partners who leave and those who remain in the partnership. Clauses in relation to retirement need to be very carefully drafted.
The Partnership Act also states that partners are not entitled to interest on the capital they contributed to the farming business, unless the partnership agreement says so. A well drafted partnership agreement should cover the return of any capital invested, and any interest to be paid. You do not want a leaving partner demanding immediate withdrawal of all the capital they invested in the farm. The partnership agreement can specify time scales and terms.
A partnership agreement should also cover how to resolve disputes, and in what order, from mediation, arbitration or the expensive option of courts.
Partners without an agreement may be unaware that if one partner dies or is declared bankrupt, the partnership is automatically dissolved. In the case of a partner’s death, it could be that their estate receives a certain percentage, or a payment. If there is no legal agreement, the partnership has no obligation to pay the estate anything.
Putting a partnership agreement in place is just plain smart. Both parties need to understand that it is the intelligent and practical thing to do. If you want to avoid the “We need to talk” conversation, or whatever the professional equivalent is, it is essential that you have a partnership agreement in place.