Partnerships can be a great way to structure an equestrian business, but all too often family partnerships can end under acrimonious circumstances. Where valuable business assets are so tightly bound, family tensions can run high. To help avoid a potential dispute, here are our 10 top tips:
- Good communication. Communication is key to a well-run partnership. Ensuring partners are open to discussion, debate and most importantly, listening, will help maintain the status quo.
- Partnership agreement. If you do not already have one, put in place a well written partnership agreement which all partners understand and buy into. The agreement should clearly outline the rights and obligations of the partners and set out steps for division of assets upon termination. If one is already in place, check that it is current and reflects the ongoing business activities.
- Regular partners meetings. Owners may see each other frequently around the yard but it is important to make time to sit down and discuss the business and the future direction. These meetings should allow each partner to voice their opinion and ideas. This will highlight potential areas of disagreement early and with open conversation, hopefully an equitable solution can be found.
- Plan ahead and budget. Prepare for any significant capital expenditure, including the timing of purchase and the financing arrangements. This will ensure all partners are on board with major commitments made on behalf of the partnership.
- Capital account review. The annual partnership accounts should include a capital accounts. These allocate partnership assets such as land and property, or horses between individual partners based on the underlying ownership of assets. Reviewing this on an annual basis and approving the split by signing the accounts avoids any ambiguity and misunderstanding about asset ownership.
- Ensure profit share reflects input. Often the allocation of profits within an equine partnership is driven by the tax position. Provided the partners agree and understand why profits have been allocated in a certain way, this approach works well. However, if one or more partners feel they are contributing more than others, they may want this to be reflected in the profit share. A partnership agreement should build in flexibility when allocating income profits, perhaps by considering a prior share of profit in the form of a fixed salary.
- Private use of assets. This can become a bone of contention if there are material differences between the partners. For example, if one partner drives a new Porsche Cayenne and the other a 10-year-old run around and the partnership pays for the running of these assets, or a variance between living in a large house and a small cottage. Compensation can be made by way of a larger profit share and additional drawings to equalise the position on an annual basis.
- Review of drawings and capital introduced. A detailed breakdown of the amounts included in accounts can always be provided. These should be reviewed and discussed on an annual basis to ensure allocates are correct and fair. The result being the capital accounts reflect the true position.
- Document final decisions. This should avoid a decision being questioned later when the reasonings, although valid and agreed in the moment, are lost in the mists of time.
- Agree roles and responsibilities. Ensure each partner’s role is a conscious decision, rather than a habit formed from a lifetime of working together. It is important to share the workload fairly and for each partner to feel valued for their input.
Hopefully these tips will help pave the way for a long and happy partnership. However, if communications break down and the partners no longer agree, it is worth considering mediation to help resolve a dispute and potentially avoid litigation.
The role of a mediator is not there to offer tax or legal advice, but to facilitate discussion and explore options. If partners have a divergence of opinions, mediation may be able to find an agreeable way forward.