Partnership Agreements

American Agriculture Law Association32nd Annual Agriculture Law Symposium

By Cari B. Rincker, Esq.

© 2011

Overview: “The Desirable Plan”

• Understand culture of industry

• Does client have a business plan?

• Choice of business entity

• Draft and execute a partnership agreement

Cultural Hurdle• “Handshake” Culture• Partnerships are oftentimes

formed with trusted persons– Family– Friends

• Reluctance to put agreements in writing or hire attorneys

• Dynamic of farm family– Succession planning

Photo from Washington State University Extension

Business Plan

• Does your client have a business plan?– Does your client need a

business plan?– Should you help your

client develop a business plan?

• How can your client’s business plan be incorporated into the Partnership Agreement?

Choose a Business Entity

• Sole Proprietorship• General Partnership• Limited Partnership• Limited Liability Company– Professional Limited Liability Company

• Corporation– S-Corp vs. C-Corp.

• Cooperative

Photo taken at cattle branding near Casper, Wyoming

Understand Purpose of Partnership

• “Big Picture”• Purpose and Scope– What Type of Business?– Authorized business

activities?– Unauthorized business

activities• Duration or Term Erica Leubner from Tim’s Pumpkin Patch

in Upstate New York

Some Basics

• Principal Place of Business

• Choice of Law– Are there any

specific state law issues?

• Name of Partnership• Licenses, Permits,

Franchises?

Identify the Partners• Contact information– Full legal names– Business entity– Addresses– SSN or FEIN

• Qualifications of Partners– What are they each “bringing to the table”– Keep this in mind, even with farm families

Show Me the Money• What are the initial capital contributions of each partner?– Look at total initial capital of the Partnership– Cash, real property, personal property, intellectual

property– When should initial contributions be made

• Subsequent Capital Contributions• Interest on capital contributions

Title to Partnership Property• Title to Property to

Remain in Partner• Property to be in the

name of the Partnership

• Rights in Specific Partnership Property

Liabilities of Partnership

• Mortgages or liabilities assumed by partnership

• Loans to Partnership By Any Partners

• Look at terms– Amount– Interest– Security for repayment

• Monthly Expenses– Is the partnership properly

capitalized?

Photo taken at Marc King Simmentals in Montana

Duties of Partners

• Full or part-time duties– Management of day-to-

day operations– Accounting– Marketing/Advertising

• Time partners to devote to Partnership– Hours/week– Salaries– Vacation days

Photo taken at Lake Land College in Mattoon, Illinois

Restrictions on Partners• Examples:

– Not borrow money in name of partnership or individually for partnership use

– Not lend money or property of partnership or transfer, pledge or mortgage assets of partnership

– Not purchase property for partnership– Not execute bonds, guaranties, or

indemnities– Not release claims of partnership or

engage in settlements for partnership– Not to Engage in Other Businesses– Hire/Fire employee without consent of

other partners

Photo taken in Nebraska

Management of the Partnership• Managing Partner(s)– Limitation on Powers – Committees

• Voting– Matters requiring unanimity

• Participation of Partners– Normal operations– Extraordinary actions– Description of actions requiring vote of partners

Profits and Losses

• How the Partners will divide profits, losses and other financial attributes of partnership– Special tax allocations• Depreciation• Capital gains/losses• Other tax attributed

– When will the division of profits take place

Accounting• Who will manage books?• Where will records be kept?• Method of accounting (e.g., cash basis)• Tax year (e.g., calendar year)• Appointment of independent accountant• Periodic statements to partners• Right of partner to examine books• Accounting between Partners

Transfer of Partnership Interest• Restrictions on assignment, sale or pledge of

interest• Right of partnership to buy interest– Right of first refusal– Partner’s right to put interest to partnership– Valuation of interest

• Formula for valuing goodwill or other tangibles

– Method of payment• Installment payout

– Duty of incoming partner to assume share of partnership liabilities

Admission of Partners

• Voting requirements• Initial qualifications• Duties/restrictions• Equity• How will profits/losses be

divided with new partners?

Withdrawal or Retirement of Partners• Notice of Withdrawal or

Partnership• Is consent required from other partners?• If no consent, non-compete clause?• Payment for partnership

interest• Will partnership continue?

Leland and Davadia Rincker

Expulsion of Partners• Grounds– Adjudged insane or incompetent– Becomes disabled or unable to fulfill his or her

obligations to the partnership for X number of days– Fails to fulfill obligations

• Vote required– Majority?

• Payment for partnership interest as if partner voluntarily withdrew

• Non-compete?• Will partnership continue?

Dissolution of Partnership• Causes of Dissolution– Termination of defined term– Withdrawal, retirement or expulsion of any Partner– Death, disability, or bankruptcy of any Partner– Unanimous agreement

• Right to Continue Business After Dissolution• Payment if Partnership Continued After Dissolution– Value of partnership’s interest

“Winding Up” Stage• Upon dissolution, if partnership is not to be

continued then it will be “wound up”• During the “winding up” stage, the assets of the

partnership will be applied to liabilities in the following order:– Amounts owed to creditors other than Partners;– Amounts owed to Partners other than for capital and

profits;– Amounts owed to Partners for capital; and, – Amounts owed to Partners for profits.

Alternative Dispute Resolution• Negotiation• Mediation– State Agriculture Mediation Program?

• Arbitration – Rules – Arbitrator(s)

• Exceptions to ADR– Preliminary injunctions, temporary restraining orders,

court orders for interim relief to preserve status quo

Miscellaneous Provisions

• Notice• Amendments• Life Insurance• Waiver• Validity• Confidentiality– Separate NDA?

• Rules of Interpretation• Indemnification• Entire agreement

Contact Me11 Broadway, Suite 615New York, NY 10004(212) 427-2049 (office) (212) 202-60777 (fax)cari@rinckerlaw.comwww.rinckerlaw.com

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