Many dentists practice in partnership with others. This has many advantages, however, if the terms of your partnership are not properly documented, it can carry even greater risks.
Some commentators claim a partnership is similar to a marriage. It is akin to a marriage when a dispute between partners arises, that can be comparable to an acrimonious divorce. During disputes partners can feel isolated where they have to attend work everyday and deal with partners with whom they are in contention. Partners in a dispute will often face direct personal criticisms as to their performance/contribution to the partnership. A partnership agreement will not prevent a dispute but it will clearly set out how to deal with a matter where one arises.
Most dentists who are carrying out business in partnership have not recorded the terms of their partnership agreement in writing. Partners at the commencement of their partnership are often more focused on dealing with their patients, employees, the primary care trust and other business concerns. The task of recording the terms of the partnership is rarely even discussed let alone committed into writing. This does not in itself create a difficulty where the partners are performing and getting along and the business is going well. However the lack of a partnership agreement will create difficulties if, and when, disputes arise between partners.
Partnership Act 1890
Unless the partners have agreed and signed a partnership agreement, or have written evidence of what has been agreed between them, then the partnership is governed by the Partnership Act 1890. The act is rather basic and is only nine pages long. In contrast partnership agreements are usually not less than 20 pages long. This simplistic comparison helps to illustrate a partnership agreement can deal with what should happen in far more situations that regularly arise within a potential dispute which is not assisted by the Partnership Act.
There are a number of key points which the Partnership Act 1890 confers on partnerships if no agreement is reached between the partners to the contrary as follows:
- it requires equality between the partners including relating to profit share;
- no majority of partners can expel another partner;
- the death of a partner will automatically dissolve the partnership issue.
At first glance these do not perhaps appear to be especially draconian provisions. However if you have not agreed a provision for expulsion of a partner then a situation can, and often does, arise where one partner can be failing to carry out his share of the workload and yet will be entitled still to an equal share of the profits. By contrast partnership agreements will expressly set out the requirements of partners so all partners are fully aware of what is expected and any potential consequences.
Dissolution
Under the Partnership Act if agreement cannot be reached between the partners as to the retirement of one or more partners the only way to bring the partnership to an end is by dissolution. Equally death of a partner causes dissolution. The ramifications of dissolution are the partners are required to divide up the business, sell the assets of the partnership including equipment and premises. Contracts with employees are terminated and the partnership can face redundancy or dismissal payments. Further dissolution triggers the obligation to pay any loans and overdraft facilities and can lead to advance tax payments.
Dissolution of a practice will also automatically terminate contracts with the PCT and the contract is put out to retender. Whilst there may be arguments you can raise with the PCT, those arguments are costly and time consuming. Without a partnership agreement which can prevent a partner from giving notice of dissolution any partner can serve notice of dissolution. A good partnership agreement will prevent this.
A partnership agreement will also deal with other issues that arise on a partner leaving the practice including the withdrawal of capital, capital and current account monies, payment of tax, how to deal with debts and determining of personal and partnership assets. Partnership deeds will also manage issues of performance often by way of a performance management regime which sets out contractual consequences in the event of under performance, introduction of new partners and the issue of retirement.
Conclusion
Partnership disputes will always arise. Some commentators say disputes usually arise between medical and dental practitioner partners every three to five years. If there is a well drafted partnership agreement the areas of contention are narrowed and there is a clear process on how remaining issues can be resolved. It undoubtedly takes time to reach agreement with partners and an outlay of initial costs in having the agreement drafted. However the cost, financial and in terms of stress, and the time in dealing with a partnership dispute without an agreement is far greater. The partnership disputes which most often end in trial before the courts are those where there is no agreement in place. With this in mind the question should be not whether partners can afford the time or cost of drafting a partnership agreement but rather can you afford not to?