New Zealand farms have typically been owned and operated as family businesses.
The traditional path to ownership has been through inheritance or as a result of a career in share milking, shearing or farm management.
While these routes still remain, farm ownership by an individual is becoming more and more difficult. Equity partnerships, or farm syndicates, are an increasingly popular response to the trend towards larger scale farms and the rising cost of land.
Equity partnerships normally involve a small group of investors who know each other or are introduced by a common party.
Individuals are usually (but not always) already involved in the rural industry and have a good working knowledge of the proposed investment.
The preferred ownership structure for an equity partnership is frequently through a company but Limited Partnerships are also common.
The basic advantages of this arrangement are continuity, transferable ownership and limited liability. A company also provides a transparent and regulated structure.
Considerable time, effort and expense is required to establish a successful and enduring business relationship.
If establishing equity partnerships through a company, the following should be contemplated by all involved:
- All potential issues should be recognised, addressed and reconciled from the outset. Investors should put all issues on the table to avoid problems down the track.
- A robust shareholders agreement should be signed that address decision-making, exit procedure, share sales, a share valuation process and how disputes are to be resolved.
- An investment period should be contemplated by all investing.
- A clear business plan should be developed.
- All parties employed in the business should sign contracts with accurate job descriptions.
- Sound professional advice should be sought to help facilitate the process.
- As with all business ventures, robust procedures governing the relationship between the investors is the key to success.
Investors benefit from an opportunity to be involved in a larger enterprise than they would normally be able to afford and achieve economies of scale with shared capital outlay.
If they are already involved in farming operations they can invest in different regions to spread climatic risk, or access lower-priced land or land of better quality.
Retiring farmers benefit from an opportunity to remain involved in the farming industry.
In recent years, equity partnerships have been most common in large-scale dairy farms. Equity partnerships in sheep and beef farms are less common but interest is increasing. Other industries where equity partnerships are common are viticulture, kiwifruit and poultry.
The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document.
If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser.