The basic premise of a partnership is two or more people trading in business together to make a profit. It is a relatively simple concept that has existed for centuries.
What this looks like in practice, however, is ever-evolving to keep pace with the increasingly dynamic and changing world of farming. Limited Partnerships (LPs), whilst not by any means new, are a less well-known alternative to the traditional general partnership and to the more restrictive Limited Liability Partnership (LLP). LPs are becoming increasingly popular vehicles that enable the younger generation to join a farming business gradually and be part of the succession process. This may include non-farming children, who often have other jobs and private wealth, so they want to avoid the unlimited liability exposure that comes with being a general partner.
LPs allow individuals to be involved and share profits in the farming business. At the same time, their liability is restricted to their contribution to the partnership, either in terms of the amount in their capital account or an amount specified in the partnership agreement. The flip side is that limited partners cannot be involved in management decisions; otherwise, they will lose their limited status for the duration of their involvement. Having a written partnership agreement is essential to clearly define roles and responsibilities in an LP and, indeed, in all partnerships.
The Limited Partnerships Act 1907 continues to underpin LPs, but the recent Economic Crime and Corporate Transparency Act 2023 aims to modernize this framework, subject to detail to follow in secondary legislation. Of course, this will be subject to any election-driven changes following 4th July, but some change is inevitable (and, arguably, overdue).
Most of the reforms are likely to have a six-month transition period, so if you are thinking of entering into an LP or are already part of one, we recommend speaking to your professional advisers sooner rather than later to review your current position with the forthcoming changes in mind so that you are in the best possible position when they do come in.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
