Farm Business Structures Part 3: How do I incorporate a farming partnership?
Tom Potts, from our corporate team discusses key aspects of agricultural business structuring in a series of articles, providing information on the different options and helping you identify the best option for your farm.
If you have decided, having weighed up the pros and cons we set out last time, that it would be a good idea to incorporate your farming partnership, this article considers the process for making this happen.
The first step is to register a new company. This is fairly quick and straightforward to do. Once the necessary form has been submitted, Companies House will typically issue your certificate of incorporation within a couple of days.
The more complex stage is transferring the assets that make up your existing business into the new company and it is important to take legal and accountancy advice from specialists in this type of transaction.
Before you sign anything, there are some key questions to consider:
- Does your bank have any security over the assets, such as a mortgage over the farmland? If it does, you are likely to need the bank to release this before the asset can be transferred. The bank will probably want to put in place new security in the name of your new company.
- Do you have any employees? These will transfer to the new company automatically under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (known as “TUPE”). There are certain steps you will need to take, such as informing employees of the change.
- What will the company pay for the assets? Generally, no money will actually change hands and either a debt will be created, or shares will be issued to the partners, in exchange for the partnership assets. The form of any “payment” can have tax implications. For example, Incorporation Relief from Capital Gains Tax may be available if shares are issued.
- Do you have any key customer or supplier contracts to transfer to the new company? These customers and suppliers will have to be notified and may (depending on the terms of the contracts) need to give prior consent. If the farmland is subject to any leases, the terms of these will also need to be considered in the context of the proposed transfer.
Once you have resolved these points, the paperwork to record the transfer will need to be prepared. This is likely to include a Business Purchase Agreement and Land Registry transfer forms for any land being moved into the new company. Certain resolutions of the shareholders of the company will also be needed to ensure the transaction is valid under company law.
After the transfer has completed, the farming business and its assets will be owned by the new company. That company will in turn be owned by the former partners (now as shareholders). At this point, it is a good idea to consider how the company will be run going forward and, in particular, whether you should put a Shareholders’ Agreement in place. This will be the topic of Tom’s next article.
Tom would be pleased to discuss the options for your farming business, please get in touch with our corporate team, or contact us online.
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