How to ensure a financially secure partnership agreement
GPs who don’t get their partnership agreements right from the outset risk huge legal bills when things go wrong, warns accountant Bob Senior
GPs who don't get their partnership agreements right from the outset risk huge legal bills when things go wrong, warns accountant Bob Senior
Many GPs place a fairly low priority on keeping their partnership agreement up to date and groan when their accountant nags them about it. So why does the accountant nag? Because invariably they will have had direct experience of the effort and cost it takes to sort things out where partners fall out and there is no adequate agreement in place.
A GP's partnership agreement will contain a lot of details that are not directly relevant to the accountant, but many of the things that should be in there are of vital interest. Some are fairly straightforward:
• Are all the partners property owners? If so, what are the property ownership shares?
• How are other profits shared?
• Are any profits allocated specifically to partners? If so, what are they and how are they dealt with?
• What expenses are regarded as practice expenses? What expenses are regarded as personal and should be paid by a partner?
Some of the less obvious points only become a consideration when a partner is absent from work:
• For how long does a partner receive a full share of profits if they are absent?
• Who is responsible for bearing locum costs? At what point do they become the liability of the absent partner?
• Are partners obliged to hold locum insurance?
• How is any PCT funding in relation to an absent partner to be dealt with?
The paragraphs about locum costs and reimbursements need careful attention. One badly drafted agreement resulted in a partner on maternity leave receiving a full profit share and all PCT reimbursements while the maternity locum was a practice cost – probably not what was intended.
Changing profit shares and the subsequent implications need to be clear:
• How can profit shares be changed? Do all partners have to agree to the change? How are changes recorded?
• How is the amount of capital held in the practice established? If a partner does not have adequate capital how long do they get to provide it? What happens if they don't?
• How and when are incoming partners required to provide capital?
Practices occupying rented surgeries need to ensure that their partnership agreement covers all the financial aspects:
• Does the practice have a maintenance reserve set aside to meet repair costs? If it does, what happens when a partner leaves? (Ideally they should not withdraw anything from the maintenance reserve.)
• Does the lease have a dilapidations clause in it? If it does, and it probably will, what has to happen when a partner leaves?
The position when a partner comes to leave the practice also needs care:
• What happens if they leave part way through a year having already taken a full year's holiday entitlement?
• When are they due to be paid any capital or current account balances?
• Is any interest payable? If so, when does it run from and at what rate is it payable? (One agreement that simply said interest is payable but failed to say from when and at what rate was less than helpful.)
Not having an adequate signed partnership agreement may cause your accountant to tear their hair out, but remember it is the partners who will ultimately be reaching for their chequebook to pay the solicitors' bills.
Bob Senior is a chartered accountant and director of medical services at accountant Tenon