Part 1 - Due diligence: the first steps towards securing a suitable new partner
The first part of our three-part guide looks at the importance of incoming partners having the opportunity to review core business and financial documentation and, you the process for obtaining referrals for the new partner.
When securing a new partner, they will need to review your partnership’s core business and financial documents. There are also some important steps that you should take before offering partnership to a candidate. This short guidance piece looks at the documents that your new partner will be interested in. It will also discuss the due diligence you should carry out before making an offer.
The three core documents that you should give a new partner will vary by practice, but are likely to include:
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.
Providing your partnership agreement to any proposed new partner will help provide clarity on:
- Their sessional commitment and share of net profits
- Their financial commitment in terms of contributing capital or otherwise
- The provisions for leave (sick leave, maternity leave or otherwise), particularly what happens to a partner's profit share during times of absence and their obligations regarding locum costs
- The provisions concerning the practice premises and whether the incoming partner will be expected to 'buy in'
- The provisions concerning the valuation of partnership assets - especially those concerning premises
- The provisions concerning expulsion and retirement.
If no agreement is in place then, as an alternative, you should seriously consider the discussing the terms upon which you will work together, with a view to drawing up a formal agreement to document your working relationship.
Find out more about some of the dangers of failing to have a formal agreement
Any incoming partner should be given the opportunity to review the last three years of the partnership’s accounts. This ensures that the new partners is aware of the partnership’s financial status, and what the likely returns would be.
Practice property documents
It is crucial that the incoming partners is aware of the practice’s premises arrangements. There are several things that they will want to know.
If the premises are leased:
- Term (length) of the lease
- Rent and other sums payable under the lease - and the extent to which they are reimbursable
- Rent review provisions
- Provisions for repair, maintenance and historic dilapidations
- Existence of break clauses (if any)
If the premises are owned and they are required to 'buy in':
- The share that they will be asked to acquire
- From whom they will acquire this share (i.e. from current or ex-partners)
- How the share will be valued
- The date by which they will be expected to complete the 'buy in'
If the premises are owned and they are not required to 'buy in':
- The terms governing the practice’s occupation of the premises
- If there are no terms, what security the partnership would have when all property owners leave
- Who is responsible for repairs and maintenance
- Who the current owners are
Unless a proposed new partner has worked with you before, you can never be entirely sure that they will fit in with your practice – both professionally and personally. The risk that they won’t can be mitigated by obtaining a full employment and training history for the proposed partners, along with supporting personal and professional references.
In doing so, some key things you may wish to consider before offering partnership to a new partner are:
- Make it clear that any conditional offer of appointment is subject to satisfactory checks being obtained and verified
- Clarify that any offer of appointment may be withdrawn if, at any time, it becomes apparent that the proposed partner has withheld information, or has provided misleading or false information
- Request a full employment or training history
- Obtain an explanation of any gaps in employment or training
- Asking for the details of individuals and/or other practices who can provide personal and/or professional references
Want to know more?
Read parts two and three of BMA Law’s partnership series.
Part two: the importance of partnership agreements
Part three: having an up-to-date partnership agreements