Partnerships

General

The term ‘partnership’ covers the situation where two or more persons agree to conduct a business on the basis of dividing the profits and sharing the losses between them. This therefore excludes businesses operated by a sole proprietor, and it also excludes businesses operated by a corporate body such as a limited company. Normally the partnership is constituted by a written contract between the partners, setting out the trading name of the firm; the nature of the business; what each partner will put into the business; how the profits will be shared etc.. Businesses such as farms or shops are often operated by partnerships, and in many professions (e.g. law and medicine) a partnership is the almost invariable method of providing general practice to clients. 

Legal Status

A partnership has the status of a legal persona in Scots law. This enables the partnership to enter into contracts in its own name, but it also means that a partnership can be sued or sequestrated. Prior to the Abolition of Feudal Tenure etc (Scotland) Act 2000, the general rule was that a partnership could not own heritable property in its own name (in theory a firm could take title as a tenant in a long lease in its own name).

A limited liability partnership may hold property in its own name. 

With effect from 28 November 2004, in terms of section 70 of the Abolition of Feudal Tenure (Scotland) Act 2000, it became permissible for partnerships to hold title. This means that, at least in theory, a firm can take title to land without the mechanism of trustees holding land for that firm.

Trustees of Partnership Holding Title to Land

Deeds in favour of the trustees

Property being acquired by the partnership should be conveyed by the granter to the trustees for the firm. Normally the whole partners of the firm at the time will be the trustees, but in principle the firm could nominate only some of its partners (or persons who are not partners at all) to be the trustees. A typical dispositive clause will run in the following style: … do hereby dispone to and in favour of A (designed), B (designed) and C (designed), the partners of the firm of D & Co. (designed) as trustees for the said firm, and the survivors and survivor of them as trustees and trustee aforesaid. However, more complicated styles of destination are not unknown – e.g. the destination might be to the partners ‘present and future and their successors in office’ as trustees. Registration officers should therefore ensure that the entry in the proprietorship section of the title sheet accurately reflects the deed. No material words should be omitted even where there appears to be repetition, as this might inadvertently change the meaning of the destination. The same principle applies where the trustees acquire on the firm’s behalf an interest of a different type (e.g. where the firm is the creditor under a standard security).

Deeds granted by the trustees

Conveyances and other deeds should be granted by the trustees on behalf of the firm; where title has been taken in the name of trustees for the firm, the partnership itself should not grant the deed. Where the partners and the trustees are the same individuals, the operative clause of the deed must make it clear that they grant the deed in their capacity as trustees.  The normal rules of authentication apply to deeds granted by the trustees. In other words, the deed should be signed by all the trustees together in the presence of one witness, or the trustees may each sign separately in the presence of their respective witnesses. The witnesses must also sign the deed and be named and designed. Section 7 of the Trusts (Scotland) Act 1921 makes a general provision for trusts of all types, to allow a majority and quorum of the trustees to sign a deed running in the name of all the trustees, if a minority of the trustees is not available to sign. See Authentication of Registrable Deeds for further information. It is a condition of registration that a submitted deed is valid and accordingly it is for the applicant to satisfy themselves that a deed signed by a quorum of trustees meets this condition before submission. In some cases, the partnership itself, and/or any partners who are not trustees, may also be parties to the deed. This is common where trustees for a firm grant a standard security; the firm itself and the partners may well grant the personal obligation, since the firm is able to contract in its own name to acquire the debt. In such cases, the operative clause should be worded in such a way that the conveyance or grant is by the trustees, and the basis on which the firm or partners are parties should be explained. Any additional partners should sign the deed in the presence of a witness (or their respective witnesses). The firm’s name may well also be ‘signed’ by one of the partners in the presence of a witness, but this is not a statutory essential.

Change of trustees and assumption of a new trustee

Where the trustees who grant a deed are the same individuals as the trustees who hold a completed title, registration officers should assume (in the absence of contradictory evidence) that there has been no change in the membership of the trust.

Where some of the trustees who hold a completed title have left the firm and are not granting the deed, and/or additional persons not named in the title grant the deed as trustees the answer to the question on the application form regarding links in title should be considered. It is for the applicant to satisfy themselves that the necessary documentation has been considered.

Just as an outgoing partner does not necessarily cease to be a trustee of the firm, so an incoming partner does not necessarily become a trustee. When a new partner joins the firm, he or she will only become a trustee if the trustees with a completed title grant a formal deed of assumption and conveyance. Alternatively, however, it may be less cumbersome for the trustees with a completed title to grant a disposition of the firm’s heritage in favour of themselves and the incoming trustee.

Guidance on whether changes in trustees should be effected by a registration event or rectification is covered in Change of Trustees in Names and Changes of Name in the Proprietorship and Securities Sections.

Partnership Holding Title to Land

Section 70 of the Abolition of Feudal Tenure etc. (Scotland) Act 2000 states that: “A firm may, if it has a legal personality distinct from the persons who compose it, itself own land.” Section 70 is intended to clarify the position of firms owning property after feudal abolition. On the face of it, the provision appears to allow firms to take title to land without hindrance.

Partnerships are rarely static for long. Individual partners will occasionally resign and leave the firm, or they may die, and new partners may come in. The Partnership Act 1890 governs the position. For example, Section 33(1) of the Partnership Act provides that, subject to any agreement to the contrary, a partnership is dissolved automatically on the death or bankruptcy of a partner. Consequently, firms sometimes come to an end as legal entities even although they may continue as business entities.

Because of the tendency for partnerships to dissolve on changes of membership, the idea of a partnership taking title to land under s.70 of the Feudal Abolition Act is widely held to be impracticable. Legal commentators are suggesting that the only safe course is to continue the traditional practice under which trustees acting on behalf of the partnership hold title to land.

It is therefore highly improbable that there will be many applications to register a title in the name of a partnership.

There are Law Commission proposals for amending partnership law, which intend to address inter alia this issue by providing for continuity of legal personality notwithstanding changes of membership. However until revised legislation resolves the foregoing practical problems the following instructions should be followed.