Think you need a written partnership or shareholder agreement? Think again
If your practice has more than one principal, then it is vital that a written agreement is put in place which caters to the needs of your practice. This should ideally be done at the outset of your business relationship to ensure that agreement is reached on key issues before your practice starts to operate.
Practices which are owned by more than one principal tend to be operated by a Partnership, Limited Company or via an Expense Sharing Arrangement.
While each structure is unique there are common themes which run through each of them, and it is recommended that key points are agreed and recorded in a Partnership Agreement (in the case of a Partnership) or a Shareholders’ Agreement (in the case of a Limited Company). Expense Sharing Arrangements are a subject in their own right and won’t be covered in this article.
You should keep your agreement in mind and ensure it is updated as and when there are any changes in the operation of your practice
A well drafted Partnership or Shareholder agreement can come into its own on a number of occasions, including:
- Profit and losses: you need to think about how you want the profit and losses of your business to be shared. Will they be shared equally among the principals or apportioned differently perhaps according to the capital contributions or in relation to income generated;
- Decision making: decision making is a key part of any business, and a written agreement can cover matters such as how often partner/shareholder meetings are to be held and the process for setting these up. There may also be key decisions which you are of the view should require majority or unanimous agreement such as employing staff (and engaging associates) or borrowing money;
- Outgoing principals: a written agreement can provide for the circumstances in which a principal may leave and cover compulsory and voluntary retirement. It would be very tricky for a business if more than one, particularly senior, principal decided to leave at one time, unless all of the principals are retiring at the same time. A written agreement can deal with the number of principals that can leave in
any given period; and - Death: it is a difficult topic to consider but a written agreement can also cover what is to occur in the event of the death of a principal which will be important not only to the practice and continuing principals but also to the family of the deceased individual.
You should keep your agreement in mind and ensure it is updated as and when there are any changes in the operation of your practice. As the saying goes, better late than never and while we recommend a written agreement is put in place at the outset of a relationship, an agreement can be put in place at any time, regardless of how long the parties have been working together for.
Putting in place a well drafted agreement, with input from professional advisers who are experienced in advising dentists, should hopefully reduce the risk of an issue becoming a problem which can’t be overcome, and we always strongly recommend that our dental clients take the time at the start of their business relationship to put an agreement in place which will create a strong structure for the future.
Hannah Grace
Senior Solicitor, Dental Team, Thorntons Law LLP
E: hgrace@thorntons-law.co.uk
D: 0333 0430350.