A farm partnership prevails when two or more people co-own an agricultural venture through an oral or written agreement. Although an oral agreement is binding, signing a written farm partnership agreement helps the partners avoid complications in future relationships. Apart from enhancing conformity to the Uniform Partnership Act -- that is, general regulations for partnerships -- a written farm partnership agreement provides room for tailoring its legal framework to suit the specific circumstances of the partners.
The scope of a farm partnership agreement varies with the primary goals and interests of the co-owners of an agricultural enterprise. Contents of the agreement specify the objectives, ownership structure, dissolution requirements and transition planning of the enterprise. An ideal farm partnership agreement covers the core issues, such as resource contributions, human resources, management roles, income distribution and type of partnership. It also establishes the operational framework for venturing into rain-fed agriculture, irrigation farming, livestock keeping or mixed farming.
Advertisement Article continues below this adA farm partnership agreement spells out procedures for handling property, machinery and equipment brought in by partners and those acquired by the partnership. The agreement shows whether each partner has leased or forfeited ownership rights to capital contributed in the form of land, tractors, vans, tilling and planting equipment, storage facilities and dairy equipment. This extends to the partners' preferences for selling, buying or distributing a partner's farm property interests upon her retirement or demise. The farm partnership agreement sets the record straight about transfer of farm property rights to next of kin upon the demise or retirement of partners.
The income of a farm partnership is not subject to taxation, because partners are individually liable for the taxes attributable to their income. The partnership only files Form 1065 to report the generated and distributed income or losses. A farm partnership agreement assigns the scale of partners' income tax payments or deductions to the share of their profits or losses. Partners also bear individual liability for gains or losses incurred in the sale of the farm's fixed assets and facilities.
Advertisement Article continues below this adThe liability scope of farm partners depends on whether they signed a general partnership or a limited partnership agreement. General partners participate in the daily management of the business, while limited partners only contribute capital, such as funds, land and equipment. Whereas general partnership extends partners' obligations to their personal properties, limited partnership restricts such responsibilities to properties owned by the farm enterprise.