Gary Markham: Your business model can change as your enterprise evolves

Although partnerships seem to be the traditional way for farming businesses and families to trade, there are a myriad of different structures that are being continually developed these days.

For example, limited companies are becoming increasingly used in farming businesses and these are commonly structured alongside partnerships – either stand alone or as a partner in the partnership.

Their use is varied, ranging from encompassing renewable projects to farm contracting businesses, which then leads to succession planning in the family. The-non farming next generation can benefit without being involved in the core farming business.

Limited liability partnerships are ideal for joint ventures between a group of farmers – ideal for those involved in machinery sharing. These provide the management of liability but allow the flexibility of partnership taxation. Many tax advisers, including ourselves at Land Family Business, have developed joint venture structures which integrate LLPs and Share Farming agreements. And from our experience, we have seen many of these continue to run for more than 20 years, surviving the test of time.

Traditional partnerships can really help with inheritance tax planning

Of course, the traditional partnership has many uses for a farming family. Apart from normal trading activity, it can hold land and property owned by some or all of the partners—often having a beneficial effect on inheritance tax planning. It is strongly advisable to have a partnership agreement, for example, to allow continuity of banking when a partner dies, as well as many other benefits.

These structures can be run on owned or tenanted land and many farming businesses these days are a mixture of owned, tenanted and joint venture land use.

Contract farming isn't always the right answer

Contract farming and share farming agreements are also used in joint ventures. So-called farming empires have built up over time using contract farming agreements, however our benchmarking results of farming businesses indicate that the average contract farming agreement has a negative margin in the business!

Finally, it's fundamental to have three well–structured and synchronised documents—partnership agreements, wills and annual accounts—to minimise and manage the many risks that farming families face.

Gary Markham will be presenting on all these and provide insight into the benefits of them from real farm experiences in our webinar, Farming business models, on Monday, 9 December at 5pm. Find out more about the webinar and book your FREE place.