A partner is taking at least a three month break from the business - due to mental issues. Would he be entitled to his share (50%) of the profits. The business is farming.
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Yes, fine by me.
Obviously the partnership agreement may say differently but I can’t put my hands on it just at the moment.
Heh heh... funny-farming business!
Not sure “mental issues” is the politically correct term!
That's a matter for the partners to agree between them. It might even be catered for in the partnership agreement.
And for when you discover no such partnership agreement exists, here's a link to the current ie updated version of the Partnership Act 1890. Happy reading!
There's no accountancy point, but there may well be a business advisory one: best if possible for the partners to talk things through in advance; best if possible to record what they might agree; etc. Cover off some what-ifs. What if 3 months becomes 6? What if 6 becomes 12? What if there are losses? Etc.
Tax law makes specific provision for non-active partners, of course. Which - of course - tells you that it is possible to be a non-active partner.
I'd turn it around: unless explicitly agreed otherwise the partner is entitled to his share of profits.
That's roughly the default position of the Partnership Act 1890: each partner is entitled to an equal share of profits unless explicitly agreed otherwise.
OP, in case you aren't aware, in the absence of any partnership agreement between your protagonists their business relationship will be governed by that Act. And because its roots are back in the nineteenth century that Act's default position (of an equal share of profit for each partner) pays little heed to the number of hours - or indeed individual effort or results - contributed to the partnership's overall business. I suspect that was because it would have been par for the course back then for a more=or-less sleeping investor to pair up with a full-time hands-on working partner; or for a professional to add his particular expertise part-time to the mix of an otherwise full-time partnership.
Succinctly put.
Unless there's a partnership agreement to the contrary, of course.
OP, a heads-up that when you're looking for a partnership agreement:
It may be in writing;
It may be oral (although then you have the practical problem of evidence);
The original agreement, either written or oral, may be superseded by a later variation (again either written or oral);
Any matter not covered by a partnership agreement reverts to statute law (primarily the 1890 Partnership Act) which means often you'll have a mix;
Partnership agreements no longer need to be a deed (unless, I believe, there's property involved).
@ EB (OP).
Most farming partnerships are family partnerships.
When considering that “family” aspect, and also the almost certain IHT aspects of farms, it is essential that a written PARTNERSHIP AGREEMENT is in place.
I am intrigued to know what factor(s) have prompted you to ASK your initial question, as this would assist in providing more guidance on how you should advise your clients.
On the provisional assumption that there is indeed a Partnership Agreement in place (if in fact there is no such Agreement then the clients should be advised to arrange for one to be prepared, for the reasons mentioned above) then your default position (if you are in any doubt) is simply to recommend your clients to ask the Solicitors, who prepared the Agreement, for their advices on your question.
It is difficult to comment further without knowing the terms in the Partnership Agreement, if any, which cover one partner’s being inactive for the extended period.
Let me consider a low key case, re a farming family partnership where is no element of dispute between the partners, and you find that the Partnership Agreement is silent in relation to extended periods of absence.
If the Partnership Agreement states for example that all four partners receive equal shares, and the partners have agreed informally that the “mental problems” partner will receive a share of profits of “half of their normal 25%”, then it would be in most cases be perfectly safe to obtain the signatures of all four partners to a LETTER confirming that “half of their normal 25%” fact. In most cases, it would be appropriate to also incorporate, into the letter, a similar “half of” reference to the weekly/monthly “Partners’ Drawings” amounts for the same period of inactivity.
Then, in due course, when preparing the draft Partnership Accounts, one should explain the differential in profit shares (as per the aforementioned letter) to all partners, prior to forwarding the Final Accounts for the approval of the partners.
The “LETTER” would have to be carefully worded to show that the profits for the 3 month period of absence would be calculated pro rata by reference to the profit for the year. That said, I again say that if you are a little nervous in this field, recommending the partners to seek the advice of the Solicitor is the safe option.
Basil.
Should you not be supporting your partner with their 'mental issues' rather than pulling the rug on their funding?
[quote=EB] ‘’your comment is unwarranted’’
Your opinion.
You are wrong.
It’s very relevant and requires very serious consideration when someone is clearly having some major struggles in their life.
Your lack of empathy and lack of knowledge of how to properly describe such health issues is frankly staggering.