Overview: “The Desirable Plan”• Understand culture of industry• Does client have a business plan?• Choice of business entity• Draft and execute a partnership agreement
Cultural Hurdle• “Handshake” Culture• Partnerships are oftentimes formed with trusted persons – Family – Friends• Reluctance to put Photo from Washington agreements in writing or State University Extension hire attorneys• Dynamic of farm family – Succession planning
Business Plan• Does your client have a business plan? – Does your client need a business plan? – Should you help your client develop a business plan?• How can your client’s business plan be incorporated into the Partnership Agreement?
Choose a Business Entity• Sole Proprietorship• General Partnership• Limited Partnership• Limited Liability Company – Professional Limited Liability Company• Corporation Photo taken at cattle branding near Casper, Wyoming – S-Corp vs. C-Corp.• Cooperative
Understand Purpose of Partnership• “Big Picture”• Purpose and Scope – What Type of Business? – Authorized business activities? – Unauthorized business activities• Duration or Term Erica Leubner from Tim’s Pumpkin Patch in Upstate New York
Some Basics• Principal Place of Business• Choice of Law – Are there any specific state law issues?• Name of Partnership• Licenses, Permits, Fr anchises?
Identify the Partners• Contact information – Full legal names – Business entity – Addresses – SSN or FEIN• Qualifications of Partners – What are they each “bringing to the table” – Keep this in mind, even with farm families
Show Me the Money• What are the initial capital contributions of each partner? – Look at total initial capital of the Partnership – Cash, real property, personal property, intellectual property – When should initial contributions be made• Subsequent Capital Contributions• Interest on capital contributions
Title to Partnership Property• Title to Property to Remain in Partner• Property to be in the name of the Partnership• Rights in Specific Partnership Property
Liabilities of Partnership• Mortgages or liabilities assumed by partnership• Loans to Partnership By Any Partners• Look at terms – Amount – Interest – Security for repayment• Monthly Expenses Photo taken at Marc King – Is the partnership Simmentals in Montana properly capitalized?
Duties of Partners• Full or part-time duties – Management of day-to- day operations – Accounting – Marketing/Advertising• Time partners to devote Photo taken at Lake Land College to Partnership in Mattoon, Illinois – Hours/week – Salaries – Vacation days
Restrictions on Partners• Examples: – Not borrow money in name of partnership or individually for partnership use – Not lend money or property of partnership or transfer, pledge or mortgage assets of partnership – Not purchase property for partnership – Not execute bonds, guaranties, or indemnities – Not release claims of partnership or engage in settlements for partnership – Not to Engage in Other Businesses Photo taken in Nebraska – Hire/Fire employee without consent of other partners
Management of the Partnership• Managing Partner(s) – Limitation on Powers – Committees• Voting – Matters requiring unanimity• Participation of Partners – Normal operations – Extraordinary actions – Description of actions requiring vote of partners
Profits and Losses• How the Partners will divide profits, losses and other financial attributes of partnership – Special tax allocations • Depreciation • Capital gains/losses • Other tax attributed – When will the division of profits take place
Accounting• Who will manage books?• Where will records be kept?• Method of accounting (e.g., cash basis)• Tax year (e.g., calendar year)• Appointment of independent accountant• Periodic statements to partners• Right of partner to examine books• Accounting between Partners
Transfer of Partnership Interest• Restrictions on assignment, sale or pledge of interest• Right of partnership to buy interest – Right of first refusal – Partner’s right to put interest to partnership – Valuation of interest • Formula for valuing goodwill or other tangibles – Method of payment • Installment payout – Duty of incoming partner to assume share of partnership liabilities
Admission of Partners• Voting requirements• Initial qualifications• Duties/restrictions• Equity• How will profits/losses be divided with new partners?
Withdrawal or Retirement of Partners• Notice of Withdrawal or Partnership• Is consent required from other partners?• If no consent, non-compete clause?• Payment for partnership Leland and Davadia Rincker interest• Will partnership continue?
Expulsion of Partners• Grounds – Adjudged insane or incompetent – Becomes disabled or unable to fulfill his or her obligations to the partnership for X number of days – Fails to fulfill obligations• Vote required – Majority?• Payment for partnership interest as if partner voluntarily withdrew• Non-compete?• Will partnership continue?
Dissolution of Partnership• Causes of Dissolution – Termination of defined term – Withdrawal, retirement or expulsion of any Partner – Death, disability, or bankruptcy of any Partner – Unanimous agreement• Right to Continue Business After Dissolution• Payment if Partnership Continued After Dissolution – Value of partnership’s interest
“Winding Up” Stage• Upon dissolution, if partnership is not to be continued then it will be “wound up”• During the “winding up” stage, the assets of the partnership will be applied to liabilities in the following order: – Amounts owed to creditors other than Partners; – Amounts owed to Partners other than for capital and profits; – Amounts owed to Partners for capital; and, – Amounts owed to Partners for profits.
Alternative Dispute Resolution• Negotiation• Mediation – State Agriculture Mediation Program?• Arbitration – Rules – Arbitrator(s)• Exceptions to ADR – Preliminary injunctions, temporary restraining orders, court orders for interim relief to preserve status quo
Miscellaneous Provisions• Notice• Amendments• Life Insurance• Waiver• Validity• Confidentiality – Separate NDA?• Rules of Interpretation• Indemnification• Entire agreement
Contact Me11 Broadway, Suite 615New York, NY 10004(212) 427-2049 (office)(212) 202-60777 (fax)firstname.lastname@example.orgTwitter: @CariRincker @RinckerLawFacebook www.facebook.com/rinckerlawLinkedIn: http://www.linkedin.com/in/caririnckerSkype: Cari.RinckerFood & Ag Law Blog: www.rinckerlaw.com/blog