A previous article we published touched on the importance of establishing how you own your horse. Following on from this general discussion the next consideration after you have established your ownership is what the actual ownership structure is.
The word Ownership represents the many obligations and rights a person has in and over their horse. Ownership can be complex particularly when multiple people own the horse. But it is not unusual for numerous people or entities to join together to purchase or lease a horse. With the exception of syndication, the nature of the relationship between owners or lessees is often undefined and at times ambiguous. This in itself is not is not an issue when owners or lessees are all on the same page regarding the management of the horse. However, an ambiguous ownership structure with no written agreement between the owners or lessees causes no end of issues when there is a dispute or difference between them.
It is unbeknown to most owners or lessees of horses that when they purchase or lease a share in a multi person or multi entity situation the legal nature of their relationship will either be a partnership or a co-ownership. The categorisation of ownership under one of these two umbrellas is significant as partnerships have a separate set of rules that regulate the relationship than that of a co-ownership.
For example if nine people own shares in a very well-bred and performed mare and cannot agree if she should be sold or used for breeding what do they do? If your ownership structure is considered a partnership the owners will likely be able to turn to the Partnerships Act 1908 for guidance on how to manage matters between them. However if your ownership structure is a co-ownership your only option will likely have to be an application to court when a dispute arises and it cannot be resolved.
For an ownership structure to be considered a partnership it must fall within the definition of the Partnerships Act. The Partnerships Act states that a partnership is the relation which subsists between persons carrying on a business in common with a view to profit. Further rules for determining existence of partnership are also stated in the Partnerships Act. The Partnership Act also provides a mechanism for the partnership to be dissolved. If any owner wishes to dissolve the partnership they have the power under the Act to do so. The consequence of a partnership being dissolved is usually the sale of all partnership property followed by the payment of partnership liabilities and then the distribution of any proceeds to the partners. Owners in a partnership must be aware that under the Partnerships Act any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, but no change may be made in the nature of the partnership business without the consent of all existing partners. Therefore if only 8 out of the 9 owners wished to sell the mare and they proceeded with the sale they would be in breach of the Partnerships Act.
On the other hand if the ownership structure does not fall within the parameters of the Partnerships Act the structure will be a co-ownership. Co-ownership’s are not regulated by an Act and therefore if disputes or differences arise as noted above an owner will likely need to make a costly court application to seek a resolution.
Whether a partnership or a co-ownership the way to enable the management of the horse, avoid unforeseen risk and potential disputes would be to make sure you either have a written partnership agreement or property sharing agreement in a co-ownership situation. At a minimum the documents should note the structure, who the owners are and their shares, a description of the horse and its main purpose, how decisions are made (majority or unanimous), how disputes are managed and how the structure is ended.
Alice Nunn
Alice Nunn is a solicitor at Norris Ward McKinnon. Information in this article should not be a substitute for legal advice. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.
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