Pathways in Farm Business Ownership
Transition planning for farm businesses can be fraught with misunderstanding, misinformation and a lack of clarity around what the planning process could look like. There are currently a number of events that farmers and new entrants can attend to learn more about entering or transitioning the farm business. Many farmers however, come away from these saying ‘that was interesting but I still don’t know where to start’.
Farming families and new entrants are looking to industry to provide a steer on how to start the process and some tools and resources to help support them along the way.
RMPP have worked closely with farmers and an industry advisory group to develop a number of resources that support new entrants and families identify where to start and options to explore for their situation. Alongside good advice from a trusted expert, the resources can help farmers start a conversation and identify their next step.
The resources have been created by experts in their field such as lawyers who have pulled together examples of several types of agreements and consultants who have had vast experience working with entry into and transitioning of farm businesses.
Meet the Bowie family who have successfully navigated their way through farm succession. There are a number of videos to watch and a fact sheet with the key information.
A number of scenarios have been described in the following links including showing how the Richards family dealt with these. It includes some good tips at the end to get you thinking about your own situation.
Below are a number of fact sheets that you can read online or print off which has more information about the most common pathways to ownership options.
Examples of legal documents
When establishing a new equity partnership or other farm business structure (such as a family company), there are a range of legal documents you have to complete. This involves collecting information on the business and generally providing it to a lawyer to generate the documents. But what information do you need to collect?
We’ve identified the key information a lawyer, accountant and other rural professionals are likely to ask you about your business and the new entity you are looking to set up.
Below are questionnaires to help you collect your information and example legal documents so you can see what it is you are likely to need to have in place before you embark on the new business.
A company constitution is a “rule book” for how the company will be run. It deals with important matters such as:
- The process for transferring company shares;
- How director and shareholder meetings will be conducted;
- How directors and shareholders can make decisions;
- How many directors the company will have and how those directors can be paid; and
- The ability of the company to indemnify directors and employees against loss and buy insurance to cover directors’ and employees’ liability.
Wherever a farm business has more than one shareholder, even if they are different members of the same family, consideration should be given to the signing of a Shareholders’ Agreement.
In addition to the Company Constitution which modifies or augments the rules set out in the Companies Act 1993, a Shareholders’ Agreement is recommended as a critical additional tool where there is more than one shareholder. Some of the reasons why most lawyers dealing recommend a Shareholders’ Agreement are:
- Such agreements can deal with matters that need to be decided prior to a company being incorporated. A constitution takes effect only after incorporation.
- It reduces or overcomes the risk of misconceptions between shareholders by setting out the intended purpose and scope of the company’s activities and the way in which the company will be managed
The setting up of a Shareholders’ Agreement and the discussions which will decide upon its contents, will make shareholders address potentially significant issues that might otherwise have been overlooked. Such things might include:
- An exit strategy
- The question of funding the company’s activities
- How a company will be managed, how the directors will be appointed and what responsibilities each shareholder will have.
Performance Incentive Agreement
A Performance Incentive Agreement can be used with Stock or Farm Managers in situations when they are:
- Looking for more challenge in their role with you;
- Looking for an opportunity to build cash for future career steps;
- Looking for entry into the business as an equity partner;
- Or when you would like to recognise/reward for above average performance
Equity Partnership Questionnaire
The questionnaire will help you collect all the information you need, to help your lawyer develop a Shareholders Agreement for your new business entity.