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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3840
Experience:  Solicitors 2 years plus PQE
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My Dad is in partnership with his brother on the family

Customer Question

My Dad is in partnership with his brother on the family dairy farm. They are 50/50 equity partners. His brother has recently brought his son (my Dad's nephew) into the partnership as a salaried partner (or director) on advice from the accountant as a way of saving national insurance contributions. My Dad didn't object to the position but wasn't informed of all the ramifications. From a legal perspective it has not been documented. It is a verbal agreement.
My question is would it still be possible for my Dad to force a dissolution of the partnership in the event of a disagreement? Or would the fact that there is now a salaried partner mean that the partnership would survive if my Dad pulled out? My understanding is that my cousin has gone from a farm employee to a salaried partner but does not have any voting rights or control over the business and certainly hasn't provided any equity capital.
The farm business is currently operated under an Agricultural Holdings Tenancy agreement which allows the right for the farm to be passed down unto 3 generations. The owner of the farm is now my Dad and his brother after they inherited it from their parents. The value of the farm and land is effected by whether it is let under the existing tenancy (creating a substantial discount to open market value) or let on a shorter term Farm Business Tenancy agreement where it is possible to obtain vacant possession. I am therefore trying to understand whether my Dad has compromised his negotiating position by allowing my cousin into the business as a salaried partner. Ultimately we would like to have the farm put onto a Farm Business Tenancy arrangement.
Submitted: 1 year ago.
Category: Law
Expert:  Alex J. replied 1 year ago.

Hi Thank you for your question and welcome. My name is ***** ***** I will assist you. Is there a partnership deed? Does the nephew have an employment contract? Kind regards


Customer: replied 1 year ago.
there is a partnership deed - quite an old document. Is there anything in particular I need to check in this document ? I'm not sure whether there is an employment contract or not. I will have to check with my Dad, but to be honest he may not know as his brother tends to deal with the administrative side of the business- I would guess that there probably is not any contract of employment. As far as I am aware there was nothing drawn up or signed to evidence my cousins change to a salaried partner as well.
Expert:  Alex J. replied 1 year ago.

Hi, Thank you. Did your cousin sign the partnership deed? Does the Partnership deed contain a dissolution process? Kind regards AJ

Customer: replied 1 year ago.
No my cousin has not signed the partnership deed. The partnership deed was executed in December 1977, so it is quite an old document and perhaps not as detailed as it could be. No legal documents have been signed evidencing my cousin joining the partnership as a salaried partner, but I understand that the agreement does not need to be written. My father did consent to my cousin joining the partnership as a salaried partner although he probably didn't fully understand the implications of this.There is not a dissolution process detailed within the partnership deed but there is one claus which discusses how disputes should be dealt with by referring them to an independent arbitrator who will have the power to dissolve the partnership if they think fit. There is also a claus which requires the partners to be "just and faithful" to each other and employ themselves diligently in the business (Claus 14) and a further clause that allows a dissolution of the partnership by the court if Claus 14 is breached.Regards
Customer: replied 1 year ago.
Please call after 10:30am and before 2pm. Many thanks Sue
Customer: replied 1 year ago.
Please reply with a written response.
Expert:  Alex J. replied 1 year ago.

Hi. Thank you. To evaluate this you need to ask the following questions - does he have a write to the capital, does he have liability for the losses and does he share profits - if the answer is no quite simply he is not a partner. Your father could then dissolve the partnership if he so wanted. Is the farm saleable as a total business (i.e a going concern)? Kind regards ***** ***** My apologies for the delay this question left my list temporarily.