For many practitioners, the advantages of working in a partnership are plain to see – it can enhance revenue and potentially boost a practice’s reputation. However, there is of course the possibility that a dispute can occur between partners and this can land each of them with a series of legal issues.
A serious disagreement between partners can have significant consequences for a practitioner, so it is best to try and avoid this situation at all costs. Drawing up a partnership agreement offers legal protection should friction occur. If an agreement is not put together then the partnership will be considered to be a ‘partnership at will’. Governed by the Partnership Act 1890, it states that the only possible way for a partner to be expelled is through the dissolution of the partnership. Further to this,
a partnership at will automatically ends upon the death, or bankruptcy of a partner. Most importantly, a partnership at will can be ended by any partner without giving a reason or notice to any of the other parties. The individual concerns and wishes of those involved are disregarded. This is just one of the many reasons why it is important to have a tailormade partnership agreement drawn up by specialists.
One of the main concerns of a partnership agreement is to ensure that nothing is left to chance. Every possible turn of events needs to be considered, this could include the ill health, retirement or death of a partner. A plan of action should one of these occur should be provided for in the agreement.
There are also many other important aspects of the partnership that must be considered in the partnership agreement. Before drawing up the agreement it is important that the individual issues of each party are considered. For instance, it could be that one of the parties is already involved in other partnerships, organisations or companies. If one of the parties entering the agreement is a company it must be checked that they are not bound by any contractual restrictions within prior agreements. Similarly, the partnership agreement must also consider whether partners are allowed to engage in other business.
The agreement should also deal with issues which are likely to arise in the day to day management of the practice, such as the duties of each member as well as the authority that each of them have in the partnership.
Identifying the assets of the partnership is necessary, as some assets may only belong to one member. A plan will need to be drawn up which considers the fate of assets should the partnership come to an end.
As you would expect monetary matters can often be a reason for dispute between partners, so making sure that the agreement makes financial matters clear is of paramount importance when entering a partnership. The financial responsibilities of each partner with regards to banking, insurance and accounts must be determined, as must the capital which each partner should contribute to the business, and the amount that can be drawn out on account of profits.
The end of the partnership also needs to be planned for. The circumstances in which the partnership can be dissolved will need to be considered and agreed in the drawing of the partnership agreement. Factors such as the status of the partnership upon the death, expulsion, retirement or bankruptcy of a partner will need to be planned. The way in which the assets of the partnership are to be distributed upon dissolution must be stated. Another point to consider is that if the partnership isn’t going to dissolve upon the departure of a partner, will the remaining members have the right to acquire the share of the partner who has withdrawn?
The agreement will need to be kept updated as circumstances will change as the partnership progresses and parts of the agreement may become irrelevant. Seeking specialist legal help is advisable when drawing up a partnership agreement. Making sure that a partnership is backed by a suitable, tailor-made partnership agreement is a wise decision. A dispute can arise between partners at any time over a multitude of reasons, so making sure that legal protection is put in place is always the right choice.