Farming with other people – friends, family, romantic partners, and business partners – can be enjoyable and beneficial. But, partnering up can also come with some challenges, legal and otherwise. Many farmers and ranchers consider the personal liability risks of a general partnership to be too great so they’ll take the opportunity to form a business structure. To find out if this is the case for you, read Chapter 3 of the Farmers’ Guide to Business Structures, titled Sole Proprietorship and General Partnership Fundamentals (26pgs.). In that chapter, you’ll learn the ins and outs of those default business structures, including the inherent benefits and risks of partnerships. For example, partnerships can require less paperwork, BUT they do not offer personal asset protection. If you don’t want to be personally responsible for your partner’s actions, read up on forming a separate business structure in the pathway: I’m not sure which business structure is the right one for my farm/ranch. Where do I start?
Working with others also increases the risk that disagreements will cause intractable problems for the farm or ranch business further down the road.
You’ve heard the stories: fights about debt loads, mismanagement of budgeting, unclear communication causing stress… There is a solution! Although it’s often not legally required, creating a thorough governance document to prevent these types of problems before they harm the business (and the personal relationships of those involved) can help the business thrive, rather than failing to survive. No matter the business structure you choose, write a partnership agreement, operating agreement, or set of bylaws that address the unique needs of the businesses and people involved. Begin drafting or updating your governance document using the Farmers’ Guide to Creating a Governance Document (20pgs.). Reference the Farmers’ Guide to Business Structures as you go, which includes detailed checklists and annotated model operating agreements and bylaws to help you get ahead of problems and create true resilience for your shared venture.
If you are bringing new partners into a venture that you’ve been operating, consider creating an additional business structure specifically for this new venture and your new partners. You can read more about those considerations in our Farmers’ Workbook for Deciding on a Second Business Structure.