set up a business
Company law is the same across the United Kingdom, but partnership, property and the enforcement of contracts are all Scottish. Two of the most expensive mistakes made by new Scottish businesses come from that gap.
Choosing a structure
The choice is usually driven by tax and by risk rather than by law, and it is worth taking accountancy advice alongside legal advice. What a solicitor adds is the part that goes wrong later: what happens when one of you wants out.
The Scottish partnership trap
Without a written agreement, one partner can dissolve the firm
Where there is no partnership agreement, the Partnership Act 1890 supplies the terms. Under it a partnership at will can be dissolved by any partner giving notice, profits are shared equally regardless of what each contributed, and there is no mechanism for expelling anyone. A falling-out therefore destroys the business rather than removing the partner. A written agreement is the single highest value document a small Scottish partnership can have, and it is routinely omitted because the founders are on good terms at the start.
A Scottish partnership is a legal person distinct from its partners. It can own property, sue and be sued in the firm name, and continue to exist as an entity in ways an English partnership cannot. That has real consequences for leases, for bank facilities and for how debts are pursued, and it is a point English precedents get wrong.
A written agreement displaces almost all of those default rules, and it is far cheaper to negotiate while the partners are getting on than to argue about afterwards. What the 1890 Act decides for you, and what a document can change, is set out under partnership agreements in Scotland. If the partners have already fallen out, start instead with partnership disputes.
The documents worth having on day one
For a company with more than one shareholder, a shareholders’ agreement covering what happens on a departure, a death, a deadlock or an offer to buy. Articles alone do not deal with any of that adequately.
Written terms of business, because the terms on which you supply are what determine whether you are paid, when title passes, and whether your liability is limited. Standard terms taken from an English template routinely refer to the wrong courts and the wrong statutes.
Employment contracts, which are required by statute, and which are the only place restrictive covenants can be created. Trying to add one after the employee has started is difficult and often ineffective.
Premises and property
If you are taking premises, the lease is a Scottish commercial lease with no security of tenure and full repairing obligations. This is one of the areas where new businesses are most exposed, and it is covered separately on our commercial lease page.
Protecting the name and the idea
Registering a company name at Companies House gives you nothing against someone else using the name in trade. That protection comes from a registered trade mark, which is a United Kingdom matter, or from the common law action of passing off, which in Scotland is pursued in the Court of Session or the sheriff court. Check availability before printing signage, not after.
What to do now
- Decide the structure with an accountant and a solicitor together rather than separately.
- If there is more than one of you, put the agreement in place before trading, not after the first argument.
- Have your terms of business drafted for Scotland.
- Check the name against the trade mark register before you commit to branding.
A note on this page
This is general information about how the law works in Scotland. It is not advice about your situation and it cannot be, because we do not know your circumstances. Nothing here should be relied on as a substitute for speaking to a solicitor about your own case.
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