The perils of a partnership at will

The majority of GP practices still operate as partnerships and – all too frequently - are partnerships “at will”. In this article, specialist primary care partner Alison Oliver and legal director Ruth Griffiths explore why this is such an unstable business model and what partnerships should do to avoid the risks of operating as a partnership at will. 

What is a partnership at will?

A partnership is a relationship between persons carrying on a business in common with a view of profit other than through a corporate vehicle such as a company: a definition easily satisfied by many working relationships. Partnerships are regulated by the Partnership Act 1890 (the Act) to the extent that there is no express agreement (such as a partnership agreement) between the partners governing their relationship. 

Partnerships are usually either entered for a specific defined period of time (for example, for the duration of a particular project) or indefinitely.  For example, a partnership formed to hold a 10-year APMS contract, might be formed for the duration of the APMS contract. However, partnerships would usually be formed for an indefinite period. 

A partnership at will is a form of partnership that arises where a partnership is entered for an indefinite term without an agreement between the partners preventing them from dissolving the partnership. The name derives from the fact that it may be dissolved at any time by any partner serving notice on the other partner(s) – it therefore exists at the will of the partners. 

Why is a partnership at will problematic?

The GMS contract is at risk:

A partnership at will can be a risky structure for any business, but is particularly problematic for GP practices, particularly GMS practices. 

This is because the GMS contract is entered into with the partnership. If the partnership is dissolved, then unless the partners give notice to the commissioner nominating that the GMS contract is to continue with one of the remaining partners, the contract will be terminated. Dissolution also poses risks for PMS agreements, where the individual partners are all party to the agreement and there is no automatic right for the contract to be varied in favour of one or more of the partners. 

No means to expel a rogue partner:

For all practices, an additional problem is that there is no mechanism for a partnership to remove or otherwise take remedial action in respect of a partner who is performing badly or putting the partnership at risk in any way. Without express agreement between the partners to the contrary, the Act does not permit a partnership to expel a partner: the only way of removing a partner is to dissolve the partnership which, as outlined above, poses risks for the practice contract.

We have come across partnerships where individual partners are acting in breach of the GMC’s professional standards or no longer satisfy the conditions for holding a primary care contract (for example because they have been removed from the medical register), thus putting the practice’s contract at risk of termination. However, without a partnership agreement conferring the right to expel a partner in these circumstances, the only recourse is to dissolve the partnership.

A comprehensive partnership agreement is helpful in all kinds of other ways as well – it is the main governance document setting out how the partners will work together, share profits, own property and so on. Without agreement on these matters, there is always a risk that disputes will arise between partners.  

Disgruntled partner

Albeit rare, we have seen a number of partnership disputes where the disgruntled partner has threatened to terminate the partnership at will, knowing that this will terminate the GMS contract, utilising the threat as leverage to secure a favourable outcome to the dispute.    
 

How can a partnership at will be avoided? 

The only way of avoiding a partnership at will from arising is to ensure that the partnership - at all times - has an agreement in place which prevents a partner dissolving the partnership without the agreement of the other partners. In addition, the agreement should set out circumstances in which a partner can be expelled from the partnership. 

A common error that practices make is not updating their partnership agreement when a new partner joins. If a new partner is joining the partnership, you should always enter a new partnership agreement between the existing and new partners or ask the new partner to sign a deed of adherence under which they agree to be bound by the existing partnership agreement. This should be done on or before the date on which the new partner joins the partnership so that the terms of their admission to the partnership are clear from the very first day. This applies to probationary partners as well as those partners who are not subject to a probationary period. Even a probationary partner will fall within the definition of a partner under the Act if they are participating in the management of the partnership and sharing in profits.
 

How we can help

Our specialist team has vast experience of preparing partnership agreements for GP practices. We will ensure that this covers the range of matters required to ensure good governance of a medical partnership and – crucially – prevent the acrimonious dissolution of the partnership. 

Key take-aways:

• A partnership at will arises if a partnership is formed for an indefinite term and there is no agreement preventing individual partners dissolving the partnership. 

• The acrimonious dissolution of a partnership is particularly dangerous for GP practices as it will put their contract at risk. 

• All partnership practices should have a legally binding partnership agreement in force at all times which sets out the main terms and conditions governing the partnership, circumstances in which partners can be expelled and preventing any individual partner dissolving the partnership. 

• You need to update your partnership agreement every time a new partner joins to ensure that all the partners are bound by it. 

Hill Dickinson’s primary care team has assisted practices across the country with the preparation of partnership agreements tailored for the particular requirements of general practice. Please get in touch if you would like to discuss how we can help.