Equity partnerships provide pathway to ownership
The dairy sector is under significant pressure. Dairy farmers are experiencing a high value of land, and an extended low dairy pay out leaving most asset rich but cash poor. The traditional family farm ownership model is no longer the most favourable ownership model for many struggling farmers. Where they are looking to restructure some farmers are turning towards Equity Partnerships or farm syndicates in order to alleviate the pressure of full ownership.
An Equity Partnership or farm syndicate is a joint venture between individuals who have come together to pool their capital and possibly their skills to purchase and run a farm.
The ability to pool capital with others (whether or not other family members, friends, or complete strangers with a common interest) allows individuals to gain ownership in a larger property, and the ability to access the associated financial rewards without being a large scale operator in their own right. With this brings the opportunity to grow wealth and income without necessarily increasing risk or workload.
The structure is usually set up by individuals who may already know each other (this includes a family) or by strangers connected through a professional. Often one of the Shareholders is employed as the farm manager. This brings benefits associated with pooling knowledge, and working together with other like-minded farmers, ensuring that the arrangement has the very best farming skills.
Equity Partnerships in New Zealand are mostly in dairy, but the structure is versatile, and can also be used in the horticultural and viticulture sectors, and sheep and beef farming.
As with any ownership structure, there are inherent risks to understand. However, these risks can be minimised with a comprehensive due diligence process including consultation with a lawyer and accountant, and an appropriately drafted agreement.
The relationship between the Shareholders is critical. If it breaks down, running the farm will be difficult and investments put at risk. Exiting the Equity Partnership to free up capital due to unexpected circumstances, such as death or relationship breakdown should be considered in the initial stages of set up, and anticipated in the agreement establishing the Equity Partnership to ensure the process is not drawn out or excessively expensive.
Equity Partnerships can be run through a variety of governance structures (including: a trust and company arrangement, or a limited partnership). Becoming a part of an Equity Partnership is a useful vehicle for sharemilker’s, or contract milker’s to take the next step into property ownership that may seem unobtainable on their own.
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.