Despite regular warnings and advice about partnership deeds there are still many practices that do not have a current and effective partnership deed. All too often we are asked to intervene in partnership disputes in practices with no partnership agreement. This is usually impossible and, as set out below, can result in disastrous consequences for all involved.
If a partnership deed is not carefully drawn up to cover all likely issues then the Partnership Act 1890 will apply to all those issues where it is silent or unclear. If no current partnership agreement exists this will create a ‘partnership at will’ which is governed by the Partnership Act 1890.
Some consequences of being a partnership ‘at will’:
- Any partner may dissolve it at any time with no formal procedure
- Death or bankruptcy of a partner will automatically dissolve the partnership
- No partner has the right to expel another for any reason
- No partner has the automatic right to carry on the partnership
- The assets will be frozen immediately on dissolution
- Staff will be made redundant on dissolution
- All partners are entitled to an equal share of the assets
- All partners have equal liability for the debts
- No new partner may be appointed without a unanimous decision
- All partners may take part in the management of the partnership
If a practice is a partnership at will and the partnership ends, the Area Team has no option but to withdraw the contract. It will then, usually, put the contract out to tender, as it will not take a side in the dispute which results in the dissolution of the partnership. In other words, all doctors (and most staff) lose their jobs.
The LMC very strongly advises all partnerships to ensure that they have a current and effective partnership deed which will over-ride the Partnership Act and make provision for future succession to the contract, division of profits, removal of a partner if there is a very good reason, etc.
It is of course essential to go to a lawyer with special knowledge and experience of general practice and partnership law. The LMC knows of, and can recommend, a number of experienced legal firms that can offer this service: they can be found in the Portfolio of LMC Approved Business Consultants.
For further information on Partnership issues please look in the Library below.
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This membership guidance note gives general guidance only and should not be treated as a complete or authoritative statement of the statutory provisions governing partnerships.
Guidance in relationship to drafting Partnership Agreements
Last reviewed on 8th December 2015 (HB).