Partners falling out – will the partnership deed help?
Justin Cumberlege, a partner in the healthcare team of law firm Cripps, incorporating Pemberton Greenish, specialises in advising GPs. Here he explains the need to protect yourself from the risk of a partnership going wrong.
When does a partnership cease to be a partnership? The answer is simple: when there is only one ‘partner’ left. At that moment the remaining person becomes a sole trader.
If there are two partners, and one serves notice to retire, then – while there may be a number of implications – the remaining GP will expect to be able to continue the practice, subject to various requirements such as varying the GMS contract.
But what if things are not amicable and you want to get rid of the other partner? Partnership deeds should contain provisions to deal with a situation if one partner is not performing, including the right for a majority of the partners to expel that partner. The problem is when there are only two of you there will never be a majority, so if there is a chance you may be reduced to two partners (or are entering into a partnership of two) you need to decide at the outset what is to happen.
There will be a breach of contract if one partner is failing to perform, but there is often an evidential issue if you want to remove a partner. It is also very possible, having reached this stage in the relationship, that the other partner is going to make similar accusations against you. If your argument ends up in court it will become very expensive and the outcome uncertain.
Even if you are able to agree that one of you will retire, then there is a question as to the extent to which the partnership deed can be enforced, because once the last partner retires, there is no partnership, and so, the argument goes, the partnership deed has no effect. Therefore you will have to agree the terms of the retirement, and the retiring partner is unlikely to accept the restrictions imposed on retiring partners which are often found in partnership deeds. These include not practising within the current practice area, not taking staff and not seeking to take patients. These restrictions are to protect the practice from the damage a retiring partner could cause by setting up a surgery close by.
What can you do to protect yourself? You have to agree at the outset (when you are all on amicable terms) that one partner will, in this is situation, have the dominant position in the partnership, so ultimately, if there is a falling out, the other partner will have to go on pre-agreed terms. While this may not be something you want to discuss at the beginning, it will save you (or your future partners) a lot of acrimony and expense in the future.
This article first appeared in Practice Management.