Why do I need a partnership deed?13/08/18
Capsticks’ new Associate Puja Solanki specialises in GP partnership law. To welcome Puja to the firm we asked her to address some of the most common questions we receive on this topic from GPs and Practice Managers. If you would like to discuss your current partnership arrangements with Puja then please don’t hesitate to get in touch. Click here to contact Puja.
Q. Why do I need a deed?
Puja: To protect the stability of the business and save time and money! A recent example that I worked on involved Drs A, B and C who practised in partnership together without a Deed. This meant that they were operating as a “partnership at will”. Dr A (a disaffected partner) served notice of dissolution on Drs B and C as well as serving notice with immediate effect on NHS England to terminate the partnership’s GMS Contract (both of which are possible under a partnership at will). Dr A then refused to rescind both notices unless his (rather unreasonable) demands for payment of his share in the property, capital and undrawn profits were met. This led to 12 months of stressful, expensive and time consuming litigation to forge a deal with Dr A whilst trying to save the GMS Contract. If the doctors had has a deed in place, this would have been avoided.
Q. What is the legal position if I do not have a current and valid deed?
Puja: A partnership can exist without a deed in place but it will then be regulated by default statutory provisions under the Partnership Act 1890 (“the Act”). This is known as a ‘partnership at will’, which is an inherently unstable business arrangement.
Reliance on the Act to govern the partnership can render partners vulnerable, as the default provisions provide little security for a GP partnership operating in the complex NHS world. As per my example above, a partnership at will can be dissolved at any time by any partner serving notice. This can have serious adverse consequences as it can put your NHS Contract at risk.
Q. What should a deed include?
Puja: A well-drafted partnership deed should address the key issues necessary to ensure the partnership operates smoothly. It must include the nature of the partnership’s business and its name, the sharing of profits and losses, the investments to be made as the capital of the partnership, decision making and the management of the partnership, leave provisions, resolution of partnership disputes, restrictive covenants, what happens if a partner retires or dies and CQC obligations (to name a few!).
Q. What about the surgery premises?
Puja: Premises form one of the most valuable assets of any medical practice. Just as a partnership should regulate its business with a partnership deed, the property owners should regulate the property arrangements with a declaration of trust. A declaration of trust is a document made between the co-owners of a property to record the owners’ shares, rights and obligations.
Q. Why is a declaration of trust needed in addition to a partnership deed?
Puja: It is possible to document these arrangements solely in the partnership deed but given the likely value of the property I would not recommend it, for two reasons.
Firstly, if a new partner joins the partnership without being bound into the deed (which happens frequently!), the deed is invalid. This will therefore include any provisions that relate to the property. If however such provisions are recorded in a separate declaration of trust, even if the deed is invalidated due to the admission of a new partner who is not bound into the deed, the provisions of the declaration of trust are still binding between the property owners.
Secondly, not all of the partners may own the property. If there is a distinction between the partners and property owners, the partnership should regularise its occupation of the property and the property owners should put in place a declaration of trust to govern their freehold ownership.