Partnership Agreements for Medical Practices: Getting It Right

The Foundation of Successful Partnerships

Partnership disputes are among the most damaging events a medical practice can experience. A comprehensive partnership agreement establishes clear rules and expectations from the outset.

Essential Partnership Terms

1. Ownership Structure

• Percentage interests of each partner
• Capital contributions required
• How additional capital will be raised
• Process for admitting new partners

2. Profit Sharing

• How profits (and losses) are divided
• Drawings and distribution timing
• Treatment of work-in-progress
• Individual billing arrangements

3. Decision Making

• Day-to-day management authority
• Major decisions requiring unanimous consent
• Meeting and voting procedures
• Deadlock resolution mechanisms

4. Partner Obligations

• Minimum time/billing commitments
• Outside activities restrictions
• Non-compete during partnership
• Insurance requirements

5. Exit Provisions

• Notice periods for withdrawal
• Valuation methodology
• Payment terms for departing partners
• Restrictive covenants on exit

6. Death and Incapacity

• Insurance arrangements
• Succession planning
• Treatment of incapacitated partners
• Estate entitlements

Valuation Methods

Common approaches include:

• Multiple of earnings: Typically 0.5-2x annual profits
• Asset-based: Net assets plus goodwill factor
• Revenue-based: Percentage of gross revenue
• Independent valuation: Third-party assessment

Dispute Resolution

Build in mechanisms before disputes arise:

1. Internal negotiation requirements
2. Mediation with nominated mediator
3. Expert determination for valuation disputes
4. Arbitration as final resort

Common Partnership Issues

Workload Imbalances

Address scenarios where partners contribute unequally:

• Define minimum requirements
• Allow flexible arrangements
• Adjust profit shares accordingly

Personal Circumstances

Plan for:

• Parental leave
• Extended illness
• Study or sabbatical
• Gradual retirement

Practice Growth

Agree on:

• Expansion decisions
• Capital requirements
• New partner admission process

Our Approach

We draft partnership agreements that:

• Reflect your practice's specific circumstances
• Anticipate common issues
• Provide clear dispute resolution paths
• Balance flexibility with certainty

Contact us to review or prepare your partnership agreement.