Tips for drafting a robust partnership agreement
Published: 04 Apr 2016
A partnership agreement is, in many respects, like an insurance policy in that you will only really need it if something goes wrong. However, there are clearly benefits in having clarity on various issues, whether that is the procedure for paying out a doctor’s capital share on retirement or the process to follow in the event of a fall out between doctors.
Here are are six key aspects that should be covered when drafting a robust partnership agreement:
1. The capital share of each partner should be clearly stated. Each partner is likely to put capital into the business, whether from his or her own resources or as a result of borrowing. The agreement should therefore state how much capital each partner is contributing and possibly deal with the issue of future increases in contributions. If not expressly stated, the Partnership Act 1890 provides that the practice is owned equally.
2. Be sure to state the profit share of each partner. As with the capital share, the Partnership Act provides that each doctor is entitled to the same profit share, if not otherwise stated.
3. Have in place clear decision making and management rules. If your practice has GPs of differing levels of seniority, it may be wise to reserve certain decisions to senior GPs. It would also be advisable to outline the work input required by each partner. Without a contrary agreement, the Partnership Act will imply that all partners are entitled to take part in the management of the business, albeit without any obligation to do so. Therefore there is no implication that a partner must devote their full time and attention to the business.
4. Outline the entitlements of the partners with regards to issues such as annual, parental and study leave. Partners are not employees and, as such, standard employment rights do not apply, and may need to be specifically included.
5. Outline the procedures for the appointment and retirement of partners. Under the Partnership Act, the retirement of a partner would result in the termination of the partnership. It is therefore important that your partnership agreement outlines how a partner can exit the partnership and how their share in the capital will be valued. It may also be necessary to have controls in case you wish to invite a new GP to join the partnership.
6. Include procedures to deal with a partnership dispute. In the absence of a partnership agreement, under the Partnership Act there is no power for a majority of partners to expel another partner. Therefore, the agreement should state on what grounds you can exercise the right to expel another partner and how this will occur, for example by a unanimous decision of all other partners.
David Edwards is head of the healthcare team at Harrison Drury