All dental colleagues who run a practice together with a view to make a profit are, technically speaking, in a partnership. Practitioners who are in a partnership without a legally binding agreement in place are leaving themselves open to a potentially expensive and stressful experience, should there be a disagreement between business partners. No documentation is required to create a partnership, so caution should be exercised in your dealings with peers so as to avoid forming a partnership inadvertently.
When a partnership is formed, it is often the case that each individual involved is so busy with treating patients, dealing with staff and other administrative tasks that important legal safety nets such as partnership agreements can fall by the wayside. Some practitioners may erroneously believe that a dispute between partners will never occur, and that the relatively little time and effort spent drafting a suitable legal document is unnecessary. This could be a costly mistake.
By default a partnership without an agreement will be governed by the Partnership Act 1890 which, in contrast to detailed agreements drawn up by legal experts, is rather deficient in its provisions and only covers the bare essentials. For example, the Partnership Act has no provision for the expulsion of an errant partner and does not go into great detail about situations that can arise within a dispute. What’s more, it is not tailored to each practice’s individual needs.
Unfortunately, disagreements in business can and do happen, particularly when events over which we have no control occur, such as the death or retirement of a partner. In this situation, in the absence of an agreement drawn up by lawyers, the Partnership Act states that dissolution is the only remaining option. This means that the practice’s assets, equipment and premises have to be sold. By extension this will require the remaining partner(s) to terminate contracts with employees and face having to make redundancies or dismissal payments. Any loans or overdraft facilities may also have to be paid off, which in turn may lead to tax payments having to be made in advance and the loss of goodwill.
Should a partner retire, under the Partnership Act, any contract with the Primary Care Trust may also be automatically terminated. Although there are ways to protect against this, they are often time-consuming, drawn out and costly. It should also be noted that without a written agreement in place, a disgruntled partner could easily serve a notice of dissolution at any time they like. This can also be avoided with a well-drafted partnership agreement.
If a partner leaves the practice before retirement, a partnership agreement will explain what to do concerning the withdrawal of capital, current account monies and the payment of tax. It should also cover how to deal with debts and determine personal and partnership assets. Partnership agreements will also address performance issues and will give direction in the eventuality of under performance and the introduction of new partners.
Properly drafted partnership agreements will often stop disputes from arising as they will set out the rights and obligations of the partners in those circumstances. Where conflicts do arise the Partnership agreement should provide a satisfactory framework to enable the dispute to be resolved.
The partnership agreement offers a clear pathway towards resolving any issues that may occur between partners working together in the dental practice. The initial time and money spent on working with a specialist solicitor to draft the document, far outweighs the cost and stress spent dealing with a partnership dispute without the backing of an agreement. A firm such as Goodman Grant Solicitors, with an in-depth knowledge of the dental industry will be happy to draw up a partnership agreement to match your practice’s requirements.
For more information please contact Ray Goodman on 0151 707 0090 or email [email protected]