Medical Practice Partnership Agreements

Partnership arrangements are common in medical practice, but poorly structured partnerships lead to disputes and costly dissolution. Understanding the legal framework is essential before entering any partnership.

Partnership Structures

Common Arrangements

Medical practice partnerships can take several forms:

General Partnership

• All partners share management responsibilities
• Unlimited liability for all partners
• Shared profits according to agreement
• Common in smaller practices

Limited Partnership

• Limited partners have reduced management role
• Limited liability for limited partners
• General partner retains management control
• Less common in medical settings

Incorporated Practice (Company)

• Limited liability protection
• More complex compliance requirements
• Different tax treatment
• Increasingly popular option

Essential Agreement Terms

Profit Sharing

Clear profit-sharing arrangements should address:

• Base salary or drawings
• Profit distribution formula
• Expense allocation
• Capital contribution requirements
• Performance incentives

Decision Making

Define governance clearly:

• Day-to-day operational decisions
• Major decisions requiring consensus
• Voting mechanisms
• Dispute resolution procedures
• Meeting requirements

Partner Obligations

Specify partner responsibilities:

• Minimum hours or sessions
• On-call requirements
• Leave entitlements
• Continuing education
• Non-compete restrictions

Entry and Exit Provisions

Joining the Partnership

New partner arrangements should cover:

• Buy-in amount and payment terms
• Probationary periods
• Transition of patient base
• Gradual profit-sharing increase

Departing the Partnership

Exit provisions are critical:

Voluntary Departure

• Notice period requirements
• Goodwill valuation methodology
• Patient notification procedures
• Non-compete clause activation

Involuntary Departure

• Grounds for expulsion
• Process requirements
• Valuation in forced exit
• Payment timeline

Death or Incapacity

• Continuation of partnership
• Buyout from estate
• Insurance funding
• Interim management

Valuation Methods

Goodwill Valuation

Common approaches include:

• Multiple of maintainable earnings
• Capitalisation of super profits
• Net asset value plus goodwill
• Industry benchmarks

Fixed vs Market Value

Consider advantages of each:

Fixed Formula

• Certainty and predictability
• Avoids valuation disputes
• May not reflect true value
• Requires regular review

Market Valuation

• Reflects current value
• Fair for departing partner
• Requires independent valuer
• Can cause delays and disputes

Common Dispute Areas

Typical Partnership Conflicts

Be aware of common issues:

1. Workload Distribution: Perceived inequality in effort
2. Financial Decisions: Major expenditure disagreements
3. Management Style: Different approaches to practice operation
4. New Partners: Disagreement over admitting new partners
5. Exit Terms: Disputes over buyout amounts

Prevention Strategies

• Clear written agreements
• Regular partnership meetings
• Financial transparency
• Defined dispute resolution
• Periodic agreement review

Legal Protections

Partnership Agreement Essentials

Every partnership agreement should include:

• Purpose and scope of partnership
• Capital contributions and ownership
• Profit and loss allocation
• Management and voting rights
• Admission and withdrawal procedures
• Dissolution provisions
• Restrictive covenants
• Insurance requirements
• Dispute resolution mechanism

Professional Advice

Before entering a partnership:

• Have agreement reviewed by legal counsel
• Obtain accounting advice on structure
• Consider insurance implications
• Understand tax consequences

Conclusion

A well-drafted partnership agreement is the foundation of a successful medical practice partnership. Taking time to address all contingencies upfront prevents costly disputes later. Professional legal advice specific to medical practice partnerships is strongly recommended.