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Partnership Agreements

During the last few months we have had a number of practices find themselves in serious difficulties due to having no partnership agreement in place or their partnership agreement not being up to date.

We cannot stress strongly enough to all GPs & Practice Managers of the need to have an up to date partnership agreement in place for your practice. The agreement needs to be in place & signed at the same time as the NHS England contract variation documents when taking on any new partners.

We understand that this can seem unnecessary & costly, however 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  • It is outdated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.

 

BMA Case Study

Below is an example case study from the BMA, which shows the dangers of neglecting your partnership agreement;

Five partners ran a successful family practice in Canterbury. Only the three longest-serving partners had signed up to the partnership agreement; the agreement had always served them well, and their busy workload meant they never got round to updating it.

Unfortunately the newest partner, Dr Whittaker, began to significantly underperform. He no longer contributed to the management or administrative functions of the practice, and there were some concerns about his competency. After some time, they felt they had no choice but to expel him.

However, when they tried to expel Dr Whittaker under the terms of the partnership agreement, they encountered some unexpected complications.

Dr Whittaker claimed that, because he had never signed up to the agreement, he was not bound by it, and the practice was therefore operating as a Partnership at Will. This relationship is governed by laws written during Queen Victoria’s reign - known as the Partnership Act 1890. This Act meant that the other partners could not expel Dr Whittaker without dissolving the partnership, putting their core contract at risk.

To avoid escalating costs - both financially and in terms of time spent - the partners opted for mediation. They managed to expel Dr Whittaker, but only after he negotiated significantly more favourable terms of settlement than he would otherwise have been entitled to under the partnership agreement. The case took two years to resolve, placing a considerable strain on the partners’ working and personal lives.

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