In Scotland the firm is a legal person in its own right

This is the single most important difference between a partnership dispute in Scotland and the same dispute in England, and almost nothing written for an English audience will tell you about it. Section 4(2) of the Partnership Act 1890 provides that in Scotland a firm is a legal person distinct from the partners of whom it is composed. The firm has its own existence. It can sue and be sued in the firm name, it can own moveable property, it can be a debtor and a creditor, and it can enter contracts. In England there is no such thing: an English partnership is simply the partners acting together.

That distinction runs through everything that follows. Separate legal personality affects who owns partnership property, who incurs the obligation in the first place, who may sue or be sued, and how a decree against the firm can ultimately be enforced against individual partners. It does not mean that a partnership dispute is only ever litigated in the firm’s name. Proceedings frequently involve the firm and named partners together, and getting the parties right at the outset is not a formality.

The separate personality does not, however, put a wall between the firm and the partners. Section 4(2) itself says that an individual partner may be charged on a decree or diligence directed against the firm, and that on paying the debt he is entitled to relief pro rata from the firm and the other members. So the firm is a person, but the partners stand behind it.

Every partner is liable jointly and severally

Section 9 of the 1890 Act provides that every partner is liable jointly with the other partners, and in Scotland severally also, for all debts and obligations of the firm incurred while he is a partner. The words “and in Scotland severally also” are doing real work. In England the liability is joint. In Scotland it is joint and several, which means a creditor of the firm can pursue any one partner for the whole debt and leave that partner to recover a share from the others.

If you are the partner with substantial personal assets and your fellow partner has little, that is a matter of some urgency. It is also why an outgoing partner who leaves without a properly documented retirement, and without notice being given to those who dealt with the firm, can remain exposed in a way he very often does not appreciate.

Where the partners have not agreed otherwise, the Act decides

A great many Scottish partnerships operate on a handshake, or on an agreement drawn up thirty years ago that nobody has looked at since. Where the partners have not agreed otherwise, the default rules in the Act apply, and they are blunter than most partners expect.

Under section 32(c), where a partnership is entered into for an undefined time, any partner may dissolve it by giving notice to the others of his intention to do so. The dissolution takes effect from the date mentioned in the notice, or if no date is mentioned, from the date the notice is communicated. One partner, one letter, and the whole firm is dissolved. There is no requirement that he have a good reason.

Under section 33(1), every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner. A three-partner firm can therefore be dissolved by an event nobody chose.

Both of those sections open with the words “subject to any agreement between the partners”, and that qualification is doing more work than it appears to. The question is not whether the agreement is in writing. An oral or an implied agreement between partners can displace the default rules just as a formal deed can, and courts will look at how the partners actually conducted themselves. What a written agreement gives you is proof of what was agreed, and clauses drafted to deal with retirement, death, valuation and buy-out on terms the partners chose rather than terms the 1890 Act chose for them. Where there is nothing to point to, the Act governs, and the Act was drafted in 1890.

That is what a partnership agreement is for, and it is a great deal cheaper than the argument it prevents. We set out the default rules the 1890 Act imposes, and what a document can change, on our page about partnership agreements in Scotland.

Asking the court to dissolve the partnership

Where the partners cannot agree, section 35 allows a partner to apply to the court for a decree of dissolution. The grounds include permanent incapacity to perform a partner’s part of the partnership contract; conduct by another partner which, having regard to the nature of the business, is calculated prejudicially to affect the carrying on of the business; wilful or persistent breach of the partnership agreement, or other conduct in relation to the partnership business which makes it not reasonably practicable for the others to carry on in partnership with that partner; a business which can only be carried on at a loss; and, under section 35(f), circumstances which in the court’s opinion make it just and equitable that the partnership be dissolved.

Section 35(d) can therefore be important where the problem is the conduct of a particular partner. It does not follow that every breakdown in working relations satisfies that ground: the conduct complained of must meet the statutory test. A wider deadlock or breakdown may instead be relevant to whether circumstances make dissolution just and equitable under section 35(f).

The judicial factor: the Scottish remedy nobody writes about

Here is where a Scottish partnership dispute genuinely diverges. Following or in connection with a partnership breakdown or dissolution, the court may in appropriate cases appoint a judicial factor over the partnership estate where independent protection, management or winding up is necessary. A judicial factor is an officer of the court, often a solicitor or accountant, who takes control of what is called the factory estate. The role is to preserve and protect the estate and, where appropriate, realise and distribute it among those entitled. The power to appoint a factor is not conferred by section 35 of the Partnership Act itself: section 35 provides for judicial dissolution, while judicial factory is a separate Scottish mechanism for independent administration of the partnership estate.

The Scottish Courts and Tribunals Service describes these appointments as arising where partners are unable to agree how the partnership will operate or be wound up, and confirms that the judicial factor is responsible for determining how the partnership will be concluded and how the partnership assets will be distributed. The appointment is made either by the Court of Session, by petition, or by the sheriff court within the jurisdiction of the estate, by summary application.

The factor is not left to his own devices. He is supervised by the Accountant of Court. He must find caution, which is a form of insurance protecting the estate against his own mismanagement. He must lodge an inventory of the estate within six months of appointment and annual accounts thereafter, which the Accountant of Court audits. He generally needs the Accountant’s consent before raising proceedings or disposing of assets. When the purpose is exhausted he applies for discharge.

It is not cheap, and you should know that before you ask for it. The Accountant of Court sets the factor’s commission, and the published hourly rates from 1st April 2026 are £256.50 for the judicial factor or partner, £185.00 for a manager and £92.50 for support staff. Statutory fees are payable to the Accountant of Court on top. From 1st April 2026 the fee for examining the inventory is calculated at 0.333% of the value of the estate as disclosed, subject to a minimum of £38 and a maximum of £924, and the fee for auditing each account rises with the value of the estate.

It is also uncommon, and it is not granted for the asking. An interim judicial factor is not appointed merely because the partners are in serious dispute. The Court of Session has described the test as one of necessity. Where the partnership is still trading, and particularly where it remains profitable, the court must also take account of the risk that putting an outsider in control may itself damage or even bring about the end of the business. A petitioner who over-reaches can find the appointment recalled, having achieved nothing except cost.

The numbers bear that out. The Scottish Courts and Tribunals Service records nine active partnership judicial factories in 2023, eleven in 2024 and twelve in 2025. It is therefore not the ordinary route out of a partnership dispute and should not be presented as routine. But where the partnership estate genuinely requires independent protection, management or winding up, judicial factory provides a distinctly Scottish mechanism for putting its administration into the hands of an officer of the court.

The Judicial Factors (Scotland) Act 2025 has been passed but its substantive provisions are not yet in force, so the existing judicial-factory regime continues to apply.

What the outgoing partner is actually owed

Two provisions of the Act do most of the work on the money, and both are frequently overlooked.

Section 43 provides that, subject to any agreement between the partners, the amount due from the continuing or surviving partners to an outgoing partner, or to the representatives of a deceased partner, in respect of that partner’s share is a debt accruing at the date of dissolution or death. The amount may still have to be established through the winding up and settlement of accounts, but that does not mean prescription necessarily waits until the accounts are finally agreed. The prescriptive position can also be affected by the partnership agreement and by matters such as a relevant claim or relevant acknowledgment, so unresolved accounts should never be assumed to stop time running.

Section 42(1) deals with the situation that causes most of the anger. Where a partner has died or otherwise ceased to be a partner, and the continuing partners carry on the business using the firm’s capital or assets without any final settlement of accounts, the outgoing partner or his estate is entitled, in the absence of agreement to the contrary, to elect between a share of the profits made since dissolution which the court finds attributable to the use of his share of the partnership assets, or interest at five per cent per annum on the amount of his share. That election can be worth a great deal where the business has traded profitably in the years since somebody walked out.

Section 44 sets out the order in which assets are applied on a final settlement of accounts. Losses are paid first out of profits, next out of capital, and last by the partners individually in the proportions in which they shared profits. Partners who assume that a deficit simply disappears when the firm does are usually mistaken.

What to do if a partnership dispute is starting

Find the partnership agreement, if one exists, and read it before you do anything else. Almost every default rule described above yields to it. If you cannot find it, or there never was one, assume the 1890 Act applies in full.

Do not serve a notice of dissolution to make a point. Under section 32(c) it works, and it is not easily undone. Partners who intended to open a negotiation have found they have ended the firm.

Secure the records. Once relations break down, access to the books, the accounting system and the client or customer list becomes the practical battleground, and a partner who is locked out is at a serious disadvantage in any accounting.

Take advice on prescription early. A section 43 debt can accrue on dissolution or death before the final partnership accounts have been settled, and other obligations arising from the dispute may have different prescriptive starting points. Do not assume that an unresolved accounting keeps time from running.

Be realistic about cost. A partnership action can combine questions of contract, property, valuation and accounting, and can become expensive quickly. Where the business is still trading, prolonged litigation can also consume value that both sides are ultimately arguing over. A commercial settlement may therefore make sense even where one side considers its legal position strong, particularly once both sides understand the legal and accounting consequences of dissolution.