A partnership agreement identifies the obligations, responsibilities and restrictions of partners at a practice.
Your partnership agreement is undoubtedly the most important document that should be provided to any incoming partner, as they will be required to sign up to it.
We strongly recommend that you document the working relationship between all partners. By doing so, you will significantly reduce the risk of potential partnership disputes.
What a new agreement should cover
- It is not essential, but is common practice for a new partner to have a probationary period.
- If you need to, either side can terminate the appointment on short notice (usually one month).
Working commitment and profit share
- Document what commitments you expect of your partner, including out-of-hours.
- Confirm what they will receive in return in terms of a profit share. Will they achieve full parity immediately, or over time?
Introducing a period over which the required contribution is paid, and/or indicating that such contribution can be taken from undrawn profits is a great way of softening the requirement to introduce capital.
Existing partners taking the responsibility of historic liabilities is a good way to attract new partners. This could include historic dilapidations in leases premises or cost rent overpayment liabilities.
It’s important to revisit your practice premises arrangements.
If the premises you operate from are leased, consider whether the new partner will be expected to become a named party to the same, and if so, how is this achieved under the terms of your lease?
If the premises are owned as a partnership asset or by the partners, consider whether the new partner will be expected to buy in. If so:
- Who will they acquire the interest from?
- When will they be expected to complete the ‘buy in’?
- How will the value be ascertained? Will independent surveyors be used?
- Is there a defined means of valuation in the existing partnership agreement?
In terms of more general changes in the general practice, you should consider whether your practice covers:
- the need to expressly provide for the possibility of taking 24-hour retirement for pensions purposes
- the possibility of the practice being involved in a primary care network
- the need to create even greater protection against partners leaving which could result in a 'last person standing' situation
- put clear decision-making and management rules
- annual leave, parental leave and study leave.
Dangers of having no agreement
If you don't have a partnership agreement in place, you may be protected by the Partnership Act 1890 (partnership at will).
However, the Act is outdated and does not cover all aspects you might need in a GP partnership.
Risks of not being covered by the Act include:
- any partner can serve notice to end the partnership at any time
- no probation period
- no equality in share of profits, losses and capital
- no effective limits on the authority of a partner to enter into arrangements which bind the partnership
- no protection for assets held by the partners individually
- no assistance in identifying how assets are to be valued and paid if a partner leaves
- no protection if you suffer automatic dissolution of the partnership, such as if a partner goes bankrupt
- no partner can be expelled from the partnership by other partners, for any reason
- a partner can't retire without bringing the partnership to an end
- no cover for leave and locum costs
- not much direction in terms of restrictions and duties.