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Partnership Agreements in Pharmacy Business (Part 1)

Have you considered using a partnership to structure your ownership interest in a pharmacy? Whilst a written partnership agreement may not be a legislative requirement, it is strongly recommended. In this article, we discuss the benefits of documenting your partnership relationship and some key considerations when negotiating your partnership agreement.

Partnerships as business structures

There are several ownership structure options open to pharmacists including operating as a sole trader, partnership or a company. A partnership is a relatively common ownership structure involving two or more people sharing ownership and profits. In contrast to a company, a partnership is not a separate legal entity, meaning each partner is personally and jointly liable for the actions of other partners.

Benefits of a Partnership Agreement

Although a written agreement is not strictly required to establish a partnership, a written partnership agreement helps protect your interest, especially if an unexpected event or dispute arises, or the partnership ends badly. It is also likely that most financiers will require a written partnership agreement following the introduction of the Anti-Money Laundering / Counter Terrorism Financing Amendment Act 2024 (Cth). As such, putting a partnership agreement on the “one day” list may no longer be an option.

Further, it is important to negotiate the terms of your agreement and have it properly drafted and signed. If you are already in partnership, you can still put an agreement in place now and should do so whilst your partnership relationship is on amicable terms.

Key clauses to include in your Partnership Agreement

Here are some essential clauses to consider including in your partnership agreement to ensure you and your business are adequately protected:

Restrictions on a partner’s activities

Your partnership agreement should include a restraint of trade clause which prohibits one partner from participating in a business similar to or in competition with the partnership’s business, where this would detrimentally affect the operation of the partnership’s business.  In addition, consider including a list of activities which cannot be undertaken without the written consent of the other partner, for example, assigning an interest in the partnership.  You may also want to include a clause which requires partners to invite other partners to participate in any future business opportunities that may arise.

Partnership decisions

It is important to delineate between decisions requiring unanimous agreement (for example “major” or “important” decisions) and decisions requiring majority agreement (for example “minor” decisions).  Consider whether one partner (for example, the majority partner or working partner) wishes to have control over the day-to-day running of the business and the power to make some decisions unilaterally.  A list of “major” and “minor” matters can be included in a schedule to the partnership agreement for clarity.

Guarantees and indemnities

It is recommended that your partnership agreement includes a clause requiring the partners to guarantee prompt performance of their obligations under the partnership agreement and indemnify each other against losses.  If the partners are entering the arrangement via a trust, a personal guarantee should be obtained from the partners. 

Exit clause

Every partnership agreement should contain an exit clause to protect your interests (and the interests of the business) and minimise disruption in the event the partnership breaks down or a partner decides to leave the partnership, even if it is on good terms.  

Generally, an exit clause sets out a structured process for how a partner can leave the business (and gives you the ability to control the circumstances and process around a partner’s departure.

We will continue highlighting the key clauses to include in your partnership agreement in Part 2 of this article next month.

If you require assistance to negotiate your partnership agreement or would like a free checklist to guide your discussions, please contact the team at Vitality Law Australia on (07) 3112 0747. 

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.