Michael Royden explains why partnership and shareholder agreements are essential for your dental business if operating as a limited company or partnership.
Many practices have more than one principal, either through a limited company, partnership or expense sharing arrangement. Where that is the case, it is really important that a written agreement is put in place which caters to the needs of your practice and the relationship between the principals, ideally at the outset of the business relationship.
While the different forms of ownership structure are 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 very specific type of relationship peculiar to dentistry, and so merit a completely separate article of their own.
What do partnership or shareholder agreements cover?
A well drafted partnership or shareholder agreement will generally address a range of topics, including:
- Decision making: decision making is a key part of any business, and a written agreement can cover matters such as how decisions are reached, areas primarily delegated to one principal eg HR, marketing, and so on. 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
- Profit and losses: you need to set out as clearly as possible how the profit and losses of the practice are to be shared. Will they be shared equally among the principals or apportioned differently, perhaps according to the capital contributions of the principals, or in relation to income generated
- Retiring principals: a written agreement can provide for the circumstances in which a principal may leave and cover compulsory and voluntary retirement. Retirement and other changes in the principals are key points in the life cycle of a practice, and so dealing with the various eventualities (so far as possible) before they occur should help to steer the practice when such circumstances arise
- 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. This will be important not only to the practice and continuing principals but also to the family of the deceased individual.
When should an agreement be drafted?
A written agreement would ideally be put in place at the outset of a relationship but it can be dealt with at any time, regardless of how long the parties have been working together for. You would also be wise to review your agreement on a regular basis to make sure that it continues to reflect the practice as it develops over the years, and to cater for changes in the principals over time.
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.
Thorntons’ dental team would be happy to help provide specialist advice on writing up these agreements. Get in touch with one of the team today on 03330 430350 or find out more about the team at www.thorntons-law.co.uk/dental.
Contact Michael on 01382 346222 or [email protected].
This article is sponsored by Thorntons Law.
