A partnership is like a marriage. A legally binding contract regulated by laws, rules and beliefs. Like a marriage, a partnership can end. Without an agreement dealing with how to exit of the relationship, how assets and liabilities are going to be split and how disputes are going to be resolved, the end of a partnership can be expensive, stressful and time consuming.
A partnership agreement is like an insurance policy. Nobody expects their house to burn down however we take out home and contents insurance in case it does. Similarly, nobody expects their partnership to end badly but you should have an agreement in place in case it does.
Here are 5 points to consider, and key questions to ask yourself, when negotiating your partnership agreement:
If a partner makes a decision to retire, what is the notice period provided to the other partners and who will acquire the outgoing partner’s interest? What if the other partners cannot afford or do not want to acquire the retiring partner’s interest, what happens then? Retirement doesn’t just occur at old age. It can occur due to a change of mind or personal circumstances.
What happens if a partner becomes disabled? What constitutes disability? Can a partner remain in the partnership if they are physically unable to work as a pharmacist but still able contribute to business management? Disability is broad. Consider what is means for you.
As many partners are not employees, leave entitlements of partners are often overlooked in partnership agreements. Unless you are an employed partner or your partnership agreement deals with payment of leave entitlements to partners, you may not be entitled to any leave, including longer periods of leave such as long service leave and parental leave. This is a genuine concern, particularly for junior and/or working partners, and should be addressed in your partnership agreement.
Options to acquire further interest
A partner may not be able to acquire as much interest as they would like at the beginning of a partnership resulting in them acquiring a lower interest with a view to increase their interest in the future. If the option to acquire further interest is in a partnership agreement, there is a clear process and timeframe. If not, it’s destined for dispute. Your partnership agreement should deal with at what point in time a partner can buy/sell interest and for what price.
Before entering a partnership, you need to make sure you can exit. What is the timeframe? Who will buy your interest and for what price? What if more than one partner wants to buy your interest? What if none of the partners want to buy your interest? Put simply, you need to know how you’re going to get out before you get in!
These points are only the start of what needs to be considered when negotiating your partnership agreement. Given the importance of protecting one of your biggest assets – your interest in a partnership – it is imperative to sit down with your partners, negotiate the terms of your agreement and have it drafted and signed. If you are already in partnership, it is not too late. Put an agreement in place now whilst your partnership relationship is strong and before a dispute arises. Things can and do change.
If you require assistance to negotiate your partnership agreement or would like a free checklist to guide your discussions, please contact Vitality Law Australia on (07) 2140 0522 or firstname.lastname@example.org
This article originally featured in the April 2023 edition of Retail Pharmacy Magazine. This article is intended to be for general information only. It does not constitute legal advice nor does it establish a relationship of client and lawyer. Specific circumstances or changes in law may vary the accuracy or applicability of the information published. We recommend seeking specific legal advice particular to your circumstances before taking any action, or refraining from taking any action, on any issue dealt with in this article.
Sarah Stoddart is the director of Vitality Law Australia, an award winning commercial and property law firm specialising in the pharmacy and broader healthcare industry. Sarah prides herself on being approachable and helping clients resolve their legal issues in a practical and timely manner.
If you require assistance with healthcare related matters including business or property transactions, regulatory approvals or leasing, please contact Sarah Stoddart on 07 2140 0522 or email@example.com