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Partnership vs. Co-Ownership: What Dentists Need to Know…

By June 3, 2015October 21st, 2021Corporate

Sometimes, a dentist might own a piece of real property with another person.  But did you know that there are different business structures which the dentist might end using inadvertently (some structures are better than others – depending on your specific circumstances)?  This comes up when a dentist passes away, for example, when the Estate Trustee has to deal with co-owned property of the deceased…

In what follows, I’ll briefly discuss co-ownership in the form of tenants in common and how this structure differs from a partnership. Before talking about those differences, it’s worthwhile to discuss what holding property as tenants in common or as joint tenants means.

To start, you should know that co-ownership means that two or more parties are owning property together. They can do so as tenants in common or as joint tenants. Tenants in common each have an interest (which need not be equal) in the property which can be transferred generally unilaterally and without anyone else’s consent; upon death, that interest would go to their estate and the beneficiaries thereunder.

If, however, parties are holding land as joint tenants, then a right of survivorship arises: the surviving party obtains the other party’s interest in the property when that party dies. Joint tenancy have equal, unlimited, and free access to the property in question. Transfers of property interests must be made unanimously.

There are important control, estate, and tax consequences that may arise – depending on whether you’re holding property as a tenant in common or as a joint tenant. Now, with these preliminary things said and done, I will move on to the differences between owning property through a partnership vs. owning property as tenants in common and NOT through a partnership.

Parties can be co-owners of property without necessarily being partners (Section 3.1 of the Partnerships Act). Here are the key differences between partnerships and co-ownerships:

  • Being a co-owner of property as a tenant in common is based on a contractual arrangement, not governed by statute, which is similar but not identical to partnership.
  • Unlike in a partnership, co-ownership can arise simply from the arrangement of ownership, whereas a partnership requires an agreement to form the partnership.
  • The sharing of profit or loss is a key indicator as to whether a partnership exists. In co-ownership, these elements will generally be separate between the co-owners. Indeed, co-ownership may exist for purposes other than the sake of gain or pecuniary advantage (e.g. social, religious, cultural, charitable, etc.), whereas a partnership requires this result: the partners must be working together to try to make profit.
  • Co-ownership generally permits the co-owners to unilaterally transfer the interest in property, whereas partnership property is governed by the requirement of approval of the partnership (unless the agreement says otherwise).
  • Unlike a partner, a co-owner is not an agent for the remaining co-owners and has no lien on anything owned in common for outlays, expenses or indemnity for obligations.
  • The co-ownership of property remains an interest in real property, whereas the partner’s interest, through the partnership ownership is a personal property interest. In other words, the partner’s interest is not in the property that they contribute to the partnership or which the partnership owns, but in the partnership itself! Partners essentially transfer their direct right to property by taking a direct right to owning an interest in the partnership. This results in considerably different treatment in the event of the death of a co-owner or partner.
DMC