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Is your partnership agreement up to date?

on Thursday, 25 January 2024.

In some senses, partnership deeds are like insurance policies. If nothing ever goes wrong, you won't need it. But it's better to have it and not need it, than to need it and not have it.

In fact, even if the partners never end up falling out, the time and money spent on drawing up their partnership agreement is not wasted. The very process of drawing it up, and discussing every aspect of the business relationship, is a valuable exercise; going through this process, and ensuring that there is the necessary 'meeting of minds' between the partners helps head off any disputes from arising in the first place.

Without a partnership deed, the partners are in a very difficult position if there is a dispute, or anything unexpected happens, like illness, sudden retirements, suspensions, or even death.  If there is no partnership agreement in place then the partners have to fall back on the rules set out in the Partnership Act 1890, which is about as out of date as it sounds. Its default rules include:

  • Equal shares for all partners
  • No ability to expel. No matter what has happened, even a partner who has been struck off cannot be expelled and may therefore have to be paid off
  • Any partner can dissolve the partnership at any time. This makes partnerships at will the least stable business structure known to mankind. If a partner dissolves then the GMS contract can go out to tender, the bank loan can be called in, and the partners can end up in an expensive dispute about which partners (if any of them) get to carry on the practice, or whether it has to be wound up.

Many practices think they have a partnership deed, when in fact they don't.  Partnership deeds can fall away in certain circumstances, the most common of which is when a new partner joins without signing anything. Some case law suggests that, in such situations, not only is the new partner not bound by the existing deed, but neither are the incumbent partners - even if they signed it, and are all, in fact, a partnership at will! This is why when a new partner joins, the aim should always be to get them to sign the deed on or before the date they become a partner.

A common misconception is that it is all right to wait until the end of probation before signing a new deed. This is a very bad idea. Firstly, the arrival of a new partner can change dynamics within the partnership and lead to disputes - so it is a bad time to be without a partnership deed anyway. Secondly, the only way you can enforce a probation in the first place is if the new partner has signed the deed!

Outdated partnership agreements are better than nothing, but given how often things change in primary care, it is important that the agreement is updated every few years. A partnership agreement that hasn't been touched since 2015, for example, will be flawed in a number of respects, in that it will not reflect:

  • Changes to the rules on reimbursement during suspension in 2015 (which could leave the practice out of pocket if a partner is suspended)
  • The introduction of PCNs, the state-backed indemnity scheme, and reimbursement for shared parental leave,
  • Increased reimbursement for sick leave - which may have caused the practice to adjust its locum insurance arrangements,
  • Tax changes which make cross-options on retirement less useful, and more of a risk, than they used to be, and
  • Challenges to green socks clauses (which still remain valid, but can benefit from some updated wording)

We would of course be happy to review your existing deed and quote for an update, or a new one if appropriate, please contact Oliver Pool in our Healthcare team on 0117 314 5429, or complete the form below.

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