General practitioner Practice manager GP practices

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Documenting the relationship: the importance of a partnership agreement

The new financial year is a prime time for new partners to join practices.

With this being the case we are producing a new three-part guide centered around the taking on of new partners.

The first part focuses on the importance of due diligence when appointing new partners. The second will explore the importance of having a partnership agreement, whilst the third will consider the need to make sure that your partnership agreement is up to date.

Part 1 - Securing a suitable new partner

Part 2 - Importance of partnership agreements

Part 3 - Up-to-date partnership agreements

 

Taking the time and effort to minimise the risk of potential disputes with incoming partners by formalising your working relationship within a signed partnership agreement is vital.

Whenever you take on new partners, it is essential to update your practice’s partnership agreement. Once signed, this will formalise your working relationships, minimising the risk of disputes in the future.

 

What are the dangers of having no agreement in place?

As strange as it sounds, if you don’t have a written partnership agreement, your working relationships may be subject to a piece of legislation that came in to existence during Queen Victoria’s reign.

This is known as operating as a ‘partnership at Will’, governed by the provisions of the Partnership Act 1890 (“the Act”).

Unsurprisingly, this is not an ideal position for any modern GP partnership. Although the Act addresses some of the ground required in setting up and running a partnership, is has serious limitations:

  • It is outdated
  • It can have unwanted or intended consequences
  • It is not robust enough to cover parts of a modern partnership
  • It is not industry-specific

Further risks associated with a ‘partnership at Will’ include:

  • Mutual assessment periods
    The Act does simply does not provide for such probationary periods. As such, if a new partner does not materialise into the addition that you had hoped, you will not have the ability or right to terminate their involvement.
  • Equality
    The Act automatically deems equality in the share of profits, losses and capital of all partners – including your new one.
  • The authority of partners
    There are no effective limits on the authority of a partners to enter into arrangements which bind the partnership.
  • Assets
    The Act does not adequately provide for assets which may be held by the partners individually as opposed to the partnership. It also provides limited assistance in identifying how partnership assets are to be valued and paid if a partner leaves.
  • Automatic dissolution
    Certain events, such as the bankruptcy of a partner, can trigger the automatic dissolution of the partnership. Such automatic dissolution can put your NHS contract at risk.
  • Determination
    Any partner can serve notice to end the partnership at any time.
  • Expulsion
    No partner can be expelled from the partnership by the other partners, irrespective of whether there are sound reasons to do so.
  • Retirement
    There are no provisions within the Act enabling a partner to retire without bringing the partnership to an end.
  • Leave and locum costs
    The Act does not cover these issues.
  • Restrictions and duties
    The provisions in the Act dealing with these points are non-specific and sparse.

With these risks in mind, we strongly recommend that you document the working relationship between all partners – including the new partner. By doing so, you will significantly reduce the risk of potential partnership disputes, particularly those which arise during the initial stages of taking on new partners, where their suitability – both professionally and personally – may still be under review.

 

Want to know more?

Read the rest of BMA Law’s three-part partnership series.

Part one: a practical guide to taking on new partners

Part three: having an up-to-date partnership agreements