Is a written Partnership Agreement really necessary?

We are asked this question often and the answer depends on the reason why it is being asked.

It is often the case that no formal written partnership has been put in place and reliance is placed on the content of the Financial Accounts and the information held on the Accountants’ file in terms of how assets are held or profits and losses split.  Most of the time, and when a partnership is harmonious, there is no issue.  However, should there be a breakdown in the relationship between the partners, or even a conflict between the content of a deceased partner’s Will and what is written in the Financial Accounts, it can be difficult to determine the actual intention of the parties, particularly as regards what is, or is not, partnership property.

The case of Wild v Wild (2018) illustrates this point well.  It involved a breakdown of a farming partnership between two brothers and its winding up.  It was unclear as to whether the property was regarded as partnership property or the brothers’ father’s private property.  The Farm had appeared on the partnership financial accounts from the 1980’s but the Court determined that this was not sufficient to prove that it was partnership property. The court did not feel it necessary to order that the farm had to be partnership property, as this was not commercially necessary in order for the partnership to farm it.

A written Partnership Agreement would have made the intention of the Partners clear and thereby avoiding any unnecessary and costly disputes arising in the future.

The case highlights the need to ensure that the intention of the partners are documented, and the partners’ position considered as a whole as regards to their succession and estate planning.

Agri Advisor would be happy to assist you should you wish to discuss this issue further.