1. AGRI 1623 Farm Management III
Partnerships
AGRI 1623
Farm Management III

2. Partnerships Two or more people share ownership
Income and losses are distributed to each partner evenly or according to the agreement
Can have a written agreement, but may not be required
Might need to be registered
Management control and decision making can be the responsibility of both or specific partners

3. Partnerships
Generally used for operating; land and sometimes machinery is owned by individual
No continuity when losing a partner (death, retirement, disability, disagreement)
It is strongly recommended to create a buy/sell out agreement!

4. Partnerships 3 Types of Partnerships General Partnership
Limited Partnership
Limited Liability Partnership

5. General Partnerships Business is not separate from the individual
Management is shared
Income/losses are distributed evenly or according to agreement
Owners still show income/losses on personal tax return (is a “pass through entity”)
Partners are all responsible for debts and obligations

6. General Partnerships
One partner can make decisions for the whole business
Important to pick good partners!
Liability
Not limited (owners share 100% liability)
Not even amongst partners
Meaning, you could be held financially liable for actions of other partners
Creditors or court settlements can come after personal assets
All partners are responsible for debt

7. General Partnerships Transfer of Assets/Business
Can add partners if/when you want
Owner of specific assets can sell, gift, or pass assets through inheritance

8. General Partnerships Taxes
For individuals it is the same as sole proprietorships
The owner is the taxpayer and is held personally liable for his/her share
Owner combines income or loss from business with other income such as personal income
Amount of taxes paid vary on tax bracket
Owner must pay self-employment taxes
15.3% for Social Security and Medicare
Tax year usually follows calendar year
Tax forms used:
Form 1040
Schedule F (Profit or Loss from Farming)
Schedule SE
Usually will have a depreciation schedule
Need to file Form 1065 for partnership income/loss

9. Limited Partnerships
Must have general partner(s) and limited partner(s)
General Partner
takes care of the day to day operational activities of the business
held liable for business debts
Limited Partner
contribute capital, or invest money in the business
have minimal or no control of management

10. Limited Partnerships
Requires written agreement and legal documents to set up
This can be a complex and costly process
What you have to file depends on the state
Business is not separate from owners
Profits/losses show up on individual tax returns
Taxed similar to sole proprietorships and general partnerships

11. Limited Partnerships Liability Limits the liability of each partner
Debts
The limited partner is only liable for debts up to the amount of their investment
General partner is still fully liable
Limited partners assets cannot be touched, but general partner’s can be
Legally (adverse actions)
General partner is still fully liable for their portion and personal assets are not protected
Limited partner is only liable up to amount of investment and personal assets cannot be touched

12. Limited Partnerships Transfer of Assets/Business
Can add general and limited partners at any time
Both general and limited partners assets can be sold, gifted, or passed on through inheritance
The business can continue after the loss of a partner

13. Limited Liability Partnerships
Limited Partnerships and LLP’s are basically the same thing
Requires two or more partners
Requires legal documents to set up
Taxed the same
Passing ownership is the same
A few differences do exist

14. Limited Liability Partnerships
Liability of each partner is eliminated for adverse legal actions of other partner’s
Your personal assets are protected if your partner gets sued and has to pay a court settlement
Each partner is still liable for their adverse legal actions
If you have to pay a court settlement, your personal assets are not protected
Each partner is liable for debts of the partnership up to the amount of their investment
Personal assets are not protected

15. Partnerships Advantages
General partnerships are relatively easy to establish
With more than one owner, the ability to raise funds may be increased
No new tax laws need to be learned
Prospective employees may be attracted if given the incentive to become a partner
Business can benefit from partners who have complementary skills
Liability can be limited for partners
Allows for easy transfer of farm business

16. Partnerships Disadvantages
Partners can be jointly and individually liable for the actions of the other partners
Profits must be shared with others
Since decisions are shared, disagreements can occur
Partnership may have a limited life with the withdrawal or death of a partner
Limited partnerships and LLP’s can be costly and complex to set up