Mills & Reeve’s primary care specialists share ten top tips when drafting partnership agreements (PAs).
1. Make sure all partners are signed up to the PA
This seems an obvious tip but it is often overlooked where there are changes in a partnership. While this may not necessarily be an issue when partners leave (as properly drawn up partnership agreements usually provide for the smooth exit of outgoing partners), new partners should sign up to the partnership agreement in order to be bound by its terms.
2. Be clear on how you split profits and losses between the partners
In terms of profits, the agreement should identify how these are split (eg by reference to the sessional commitment of the partners or otherwise) and the circumstances which they can be reduced (eg in circumstances where a partner is on leave or taking sabbatical).
In terms of losses, the partnership agreement should identify whether there are any special elements of a loss that are born differently to the general position. On a merger of practices for instance, it is not uncommon to see a situation where losses attributable to the period prior to the merger rest with the relevant original partners of the practice to which it relates.
3. Be clear on the fees, income and expenditure the partnership and the individual partners will bear
Income for private work, seniority payments (while they still subsist) are examples of income that may be recorded as belonging to the individual to whom they relate. In terms of expenses, clarity on who bears the cost of medical defence cover (to the extent that this is not met by the state backed indemnity scheme), repairs to premises, post-graduate education and training, subscriptions to bodies such as the BMA or RCGP are all examples of potential expenses that should be categorised as being a partnership or individual partners’ expense.
4. Be clear on the practice premises and the basis they are occupied on
If you lease the premises, then the partnership agreement will, among other things, need to identify which costs and expenses are a partnership expense and what will happen if a partner named on the lease retires.
If you own the premises, identify how the premises are held. If they are held by all partners, be clear on how expenses such as repairs and maintenance will be met between the partners, and most importantly, what happens to a partner’s share in the premises when they leave. Will the continuing partners need to buy this share and if so, over what period of time, at what value etc..?
5. Be clear on partner duties and entitlement to leave
Do take time to find out what the expectations are on each partner in terms of their sessional and other commitments. This aside, ensure that there is clarity when it comes to the terms governing leave entitlement (holiday, sabbaticals, maternity leave, adoption leave, paternity leave, parental leave, leave in circumstances of sickness and incapacity, etc) that you may want to cover off. Do also consider the length of leave that partners may take, the impact it could have on profit share, whether locum arrangements can be put in place and at whose cost (having regard to any NHS reimbursement received under the Statement of Financial Entitlement (SFE)).
6. Be clear on how the partners will make decisions
Most partnership agreements will identify decisions that require the unanimous consent of partners, those requiring requisite majority (say, 75% of the partners) and those they can take by simple majority decision.
Depending on the size of the partnership you may also want certain decisions to be delegated: whether to set individuals, an operational board and their subcommittees or to individual practices that make up the overall partnership.
7. Be clear on the criteria for expulsion and suspension of a partner
Be clear on the circumstances in which you can expel a partner from the partnership. Most partnership agreements cover “fault“ grounds for expulsion (such as being removed from the performance list) but consideration should be given as to whether the partnership agreement will include a “green socks” clause, which allows partners to ask a partner to leave in situations where there is a breakdown of relationships.
In addition, the partnership agreement should be clear on the terms governing suspension, recognising that in circumstances where a partner is suspended from the performers’ list, reimbursement for cover can arise under the SFE or the Secretary of State’s Determination.
8. Be clear on the retirement rules
Be clear on the rules that apply to a partner when it comes to retirement, including whether they are capable of taking 24 hour retirement for NHS pension purposes. When considering the retirement provisions partners should ensure that the stability of the partnership is not undermined by the possibility of a mass retirement of partners. This can be mitigated by setting a maximum number of partners that can retire in anyone accounting period and setting sensible maximum and minimum notice periods.
9. Be clear on the provisions governing outgoing partners
A crucial part of the partnership agreement will be the provisions which identify what is to happen when a partner leaves the partnership (whether through voluntary retirement or otherwise).
Here are a few questions to ask and cover off in the partnership agreement:
- Will the continuing partners be obligated to continue the partnership and/or acquire the outgoing partner’s share in the premises?
- How will leaving accounts be prepared and how will an outgoing partner’s share in the partnerships assets and property be valued?
- Over what time period will you repay the outgoing partner?
In addition, you should consider what provisions will continue to apply after a partner’s retirement.
- Are there certain liabilities they will continue to be subject to even after they leave, for example superannuation adjustments?
- Will the outgoing partner be subject to restrictions on his ability to poach patients from the practice?
All these should be considered and, where deemed appropriate, covered off on the agreement.
10. Remember to include specific clauses if the partnership is part of a Primary Care Network and/or an ancillary business
If the partnership is a member of a separate organisation, then the partnership agreement should identify the specific rules applicable to such membership. For example, if a practice is receiving funding on behalf of the whole network as the nominated payee, you should record this and make sure the income is held on trust for the whole network.
We can help
Our primary care team has extensive experience supporting GP partners with their partnership agreements – whether it is drawing up or amending a partnership agreement to reflect membership of a PCN.