GP partnership agreements
GP partnership agreements are important legal documents protecting the interests of GP partners in connection with the healthcare businesses they run, and the property and assets they own. A well-drafted partnership agreement is essential for the smooth running of a GP practice – they're specific to each partnership and cover a wide range of matters including partners’ duties, how decisions are taken, how disputes between GP partners are resolved and how profits are shared. In this article, we explain what to include in your GP partnership agreement.
The partnership model remains the primary business structure applicable to GP providers. Unlike other business structures (such as limited liability companies), no formal steps need to be taken to create a partnership. Providing two or more persons carry on a business with a view to profit then one will automatically deem to exist and, in the absence of a Partnership Agreement (PA) and by default, will be principally governed by the Partnership Act 1890.
As a default position, this isn't ideal.
Among other things, the Partnership Act stipulates that all partners share equally in the profits and losses of the partnership and every partner has a wide authority to bind the partnership (ie there are limited restrictions on what they can and can’t do when it comes to making or entering commitments on behalf of the partnership). There's no right of retirement or right to expel, and any partner may, at any time, serve notice to dissolve the partnership, which in turn places the practices core contract at risk. A well drafted PA that all partners are signed up to will avoid this default position and establish a solid foundation governing how the partners will work together.
But what should it cover?
While not an exhaustive list, key areas include:
- Duties and obligations
The general and specific duties falling on each partner should be set out clearly, as these will outline the expected standards that each partner is required to meet. These standards prove exceptionally important in cases where a partner is perceived to be underperforming. Beyond their individual professional performance, which from a regulator’s perspective is considered against the Good Medical Practice standards set by the General Medical Council, underperformance is extremely difficult to gauge unless and until there are clear duties against which it can be judged.
- Profits and losses
Whether these are split by reference to sessional commitments or otherwise, the split of profits and losses among the partners will need to be explicitly identified. If there are fixed share partners alongside equity partners, then this distinction will need to be made within the agreement and the entitlements of each category of partner will need to be identified. For instance, the fixed share of profits that each fixed share partner will be entitled to.
- Decision making provisions
How decisions are taken and what types of decisions are capable of being taken by what majority of partners will be key. In establishing the rules around decision making, the partnership must always set an appropriate balance around engagement/ involvement of all partners and the need for business efficiency. This is particularly important as the partnership size grows.
In such situations, it's rarely practical to have all partners involved in every decision nor to set out extensive lists of decisions that require the approval of each and every partner. As partnership size grows you would expect that the list of decisions requiring unanimous consent to fall significantly and, beyond those limited decisions and a right to choose those partners to sit on the management boards, committees to be established to oversee the day-to-day operations of the business.
- Premises provisions
Documenting what premises are held is key. Distinguishing between any leasehold and freehold premises will be exceptionally important and, in each case, the agreed position applicable will be exceptionally important.
Other considerations include:
- With leasehold premises, identifying the fact that the lease (and its costs) are a partnership obligation/ liability regardless of who's on the lease will be key, as will any provisions around the creation and maintenance of any sinking fund to cover unascertained costs/liabilities (such as dilapidations). This aside, having express provisions identifying how the lease will be handled if a partner named on the lease retires or otherwise leaves the partnership.
- With freehold premises, identifying who owns the capital in the premises will be key. Beyond this, identifying those costs and responsibilities that will fall on the property owners and those that will fall on the partnership as a whole will be key (such as repairs and maintenance costs, mortgage repayments etc.) as will be the provisions around how a property-owning partners’ share in the premises will be handled when they leave. Will the other partners have an option or obligation to buy the outgoing partner out and what are the terms that will apply? How is their share in the premises valued and over what period of time will their share be repaid?
5. Leave entitlement
As partners aren't employees, there's no statutory right for leave. Consequently, it'll be important to establish the leave entitlement that each partner is capable of befitting from. Annual leave, maternity leave, adoption leave, paternity leave, sabbatical leave etc. are all leave types that are commonly considered. As part of considering these it's wise to identify any qualifying criteria applicable to such leave, the extent of leave that a partner is entitled to and the rules applying (in particular what happens to a partners’ share or profits & losses during any such leave, who bears the cost of cover and who is entitled to the benefit of any reimbursements that are available in respect of the same).
- Expulsion provisions
Identifying the circumstances where a partner can be expelled from the partnership is always a key component of any PA. Without express provisions identifying those circumstances it can prove exceptionally difficult to remove a partner even if they're at fault or are operating in default of any express duties and obligations. Beyond considering the “fault” grounds for expulsion, partnerships will also need to consider whether they wish to include a right to expel on “non-fault grounds” (ie where there's a break down in relationships). If so, the rules surrounding such expulsion and how the decision to expel is taken will be key.
- Retirement provisions
The rules around retiring from and/or voluntarily leaving a partnership are another key element of any PA. In determining and documenting the provisions that work for you, a consideration of the notice required to retire, whether there's a limit on the number of partners that can retire during any specific period, whether there's a compulsory retirement age and/or the order of priority if two or more partners are set to retire together is always useful.
In considering these points, partners should be seeking to ensure that the retirement provisions preserve the stability of the practice/ partnership. Allowing any number of partners to retire on short notice can be hugely disruptive to any partnership, but can be devastating to those that are smaller in size. Beyond the standard form of retirement provisions, the PA should cover the possibility of 24-hour retirement by partners looking to take their NHS pension and the rules applicable (including whether it is a right of the partners and/or whether they must seek prior approval).
- Payments on a departure
Payments on a departure are linked to the retirement and expulsion provisions. The PA should be clear as to how the sums owing to outgoing partners will be determined (which is usually done through the preparation of leaving accounts) and the period over which those sums will be paid. Again, there's often a need to balance the desire to repay outgoing partners as quickly as possible against the need to preserve the financial stability of the practice/ partnership. If practice premises represent an asset owned (whether in whole or part) by an outgoing partner, how will that premises be valued? Being specific on the valuation methodology can prove exceptionally useful when it comes to avoiding unexpected differences in the methodology used by surveyors / valuers and the ultimate valuations seen when partners retire.
- Income & expenditure
Whilst it sounds obvious, being clear on the income and expenditures that will belong to and/or be borne by the partnership and those that will belong to and/or be borne by the partnership as a whole, is an important consideration. Documenting the agreed position (particularly around personal / private work) is important to set out the partners agreed expectations.
- Ancillary businesses
Whether as a member of a PCN, a GP federation or another ancillary business, the PA should have regard to the fact that most partnerships now have interests that creep beyond its core business. In doing so, considering how that interest is deemed to be held, how decisions are taken in respect of those ancillary businesses and how they're to be valued when a partner leaves are key.
How we can help
Our primary care team understand the challenges general practices face and the need for robust contractual arrangements.
If you need support with a new partnership agreement or revising and updating an existing one, contact us. It's always a good idea to review your partnership agreement on a regular basis, but at the very least where there are changes in the make-up or running of your partnership.