20th June 2024
Partnership Deeds – Your Key Questions Answered
by Sofia Parmar
Ensuring that you have an up-to-date partnership deed is essential. Your partnership deed will govern how you operate in partnership together. It will also help you navigate a partnership dispute if one arises. To make a partnership deed as effective as possible, it is vital to keep it up to date with any changes that the partnership may experience.
If you do not have a binding partnership deed in place you will be operating as a ‘partnership at will’. A partnership at will is regulated by statutory provisions of the Partnership Act 1890 (‘the Act’) and it is an inherently unstable business arrangement (especially for GPs). This act is woefully outdated in relation to running a modern GP practice so it is important for your partnership to avoid this scenario.
We have outlined a number of frequently asked questions in relation to partnership deeds.
What are the key provisions in a partnership deed?
A well-drafted partnership deed should address the core matters necessary to ensure the partnership operates smoothly. Including all of the below is important for ensuring that no aspect of partnership governance is left to the Partnership Act 1890.
A good quality deed should include the following:
- the duration of the partnership and continuance procedures,
- profit and loss sharing provisions,
- provisions regarding the capital contributions,
- decision making and the management of the partnership,
- the duties and obligations of the partners,
- leave clauses (e.g. holiday leave, maternity leave, paternity leave, adoption leave etc.),
- resolution of partnership disputes,
- restrictive covenants,
- expulsion provisions,
- provisions setting out what happens if a partner retires or dies.
Whilst the above factors are important, there are several other provisions that should be considered when drafting or updating your partnership deed.
What are the risks if we do not update our partnership deed?
If you do not update your partnership deed then you run the risk of becoming a partnership at will. As previously mentioned, such arrangement will be governed by the Partnership Act 1890. One of the most detrimental aspects of the Partnership Act 1890 is that it states that a partnership can be dissolved at any time by any partner. We have seen the threat dissolution used in partnership disputes as dissolution triggers the winding up of the practice. Importantly, it could also put your NHS contract at risk.
How can an up-to-date partnership deed prevent and/or resolve partnership disputes?
The partnership deed provides an agreed process to follow in the event of a dispute. Your deed may include compulsory retirement and expulsion provisions, which can resolve a dispute as they provide an agreed upon procedure for a partner to be removed from the partnership.
Disputes can be extremely time consuming, stressful and costly so it is best to put measures in place (via a partnership deed) to help you to navigate a dispute if one arises.
When do we need to update our deed?
You will need to update your partnership deed when a new partner joins. We recommend that you start the process of updating your deed in advance. If a new partner joins the partnership without being bound by the deed, the addition of that new partner will make the deed invalid and you will be operating as a partnership at will. This remains the case even if the new partner joins on a probationary period.
You do not necessarily have to update your deed when a partner leaves as the terms of the deed will continue to bind the continuing partners. However, we recommend that you review your deed and ensure that it correctly reflects the way the partners operate.
How BMA Law can help
BMA Law has specialist legal expertise in drafting GP partnership deeds. We are able to assist your practice with drafting a new partnership deed or varying your current partnership deed.
Contact us:
Associate Director
BMA Law