In any business where partners and staff are involved, it’s important the ground rules are put in place early.
Medical practices are no different.
The last thing anyone wants is a dispute within a practice, but at least if there are legal agreements in place, everyone knows their rights and obligations.
Partners need a framework governing how major decisions will be made and how responsibilities are shared.
Partners in a practice need to have a clear understanding of what share of the business they own, how much it is worth and ongoing funding arrangements.
Similarly, doctors working in the practice need to have a clear picture of the service fees they will have to pay towards the day-to-day running of the business and the policies and procedures they will be expected to adhere to and other critical matters such as who owns the patient records, IP and referral relationships.
When a company or a trust is established through a lawyer, accountant or an incorporation service, a company constitution or trust deed will be created. These are a basic set of rules that provide some general guidance.
But these documents are very generic and will not cover the specifics of operating your distinct practice.
That is where a Shareholder/Unitholder Agreement is vital in stating how the jointly owned practice will operate and providing a mechanism to implement changes without needing to enter into variations of the constitution or trust deed.
Variations of a company constitution or trust deed are more expensive and time consuming than having a Shareholders/Unitholders Agreement in the first place - and not as effective.
And the financial dangers of not having an agreement can be large.
The legal costs of major shareholder disputes are significant and exceed the cost of effective documents being put in place many, many times over.
Those figures don’t take into account the time lost and focus from running the business and treating patients, and the stress and animosity that can arise from being involved in disputes.
It is prudent business practice and risk mitigation to document your arrangements with your business partners and other staff working in the practice.
Shareholder/Unitholder Agreements should at least cover the following issues:
Please note that is not an exhaustive list. Service Agreements are equally important as they govern how a practice will interact with the doctors working there. That includes partners and other doctors, either employed or locums.
Doctors will commonly have their own trading entities that provide services to patients. The practice will lease premises, own plant and equipment and employ administrative and nursing staff to support the doctors in treating patients.
The practice is entitled to charge a fee for those services.
A Service Agreement is a very simple and effective tool for the management of a practice that has flow-on taxation benefits to individual doctors.
A strong Service Agreement should operate in conjunction with a Shareholder/Unitholder Agreement to address issues such as:
Once again, this is not an exhaustive list.
Having a strong Service Agreement that provides clarity around such matters goes a long way towards effective business operations and reduces the potential for disputes.
The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.