Whether you are a partner, shareholder or have assistants, consultants or other self-employed personnel at your practice there should always be a written agreement that clearly sets out the principals of the business relationship.
Not only will this significantly reduce the chances of a dispute – as you will have discussed and agreed things at the outset, but also in the unfortunate event of a dispute, having a written agreement in place that prescribes what happens under any circumstance can make a resolution far easier, simpler and quicker – and considerably cheaper.
Remember: every divorce started with a marriage, and nobody enters a professional relationship expecting it to end in a dispute; but sometimes business relationships do. However, if at the outset a lawyer is instructed to prepare an agreement, this forces all principals to consider all the different elements and outcomes that might affect their business, and may provide a mechanism for dealing with disputes other than having everyone running around threatening court proceedings.
Partnership or Shareholder Agreements
One particular type of agreement that is worth considering here is the agreement between the Practice Owners.
Having a properly considered bespoke agreement between practice owners is of fundamental importance.
The best time to draw up such an agreement is before the practice has opened – but in many instances, that has not occurred – and simply because practitioners have been in business together, perhaps for many years, does not mean that there is no merit in an agreement being drawn up now. Just like married couple who might get divorced after 25 or 30 years of marriage, so business relationships can also disintegrate at any time.
If the owners have sat down and discussed how they wish to run their practice, who is going to do what and when, what is the limit of an individual’s authority, what is to happen when one of them wants to leave are all key issues – and there are many, many more.
In our experience, if these issues are discussed, agreed and embodied into a binding agreement where both parties have had the benefit of legal advice will not only assist in the smooth running of the practice, it can also significantly reduce the chances of a dispute. There has been proper consideration of and extensive communication about these issues thus enabling everyone to move forward with a common understanding of their role and responsibilities – and the responsibilities of others, in the practice.
Agreements should also set out what restrictions (referred to as “restrictive covenants or “binding out clauses”) will apply in the event of an owner leaving the practice. Given both parties will have had ample opportunity to consider the position and have had the benefit of legal advice these will, in most cases, be upheld by the courts.
It the case that even with the best will in world, disputes can arise. A well drafted agreement will cater for this. It will set out specifically what are the grounds for a party being expelled, how their share of the practice is to be valued and the timescales for payment to be made. Such provisions should also provide for any dispute to be referred to arbitration as an alternative to court proceedings – such proceedings being far simpler, quicker and considerably cheaper than “normal” court proceedings.
What’s worse than no agreement?
It can often be the case that worse than having no agreement is having a very poorly drafted one that doesn't address the issues, or is so poorly constructed that both parties remain uncertain as to their position. Indeed, it is not unusual to come across badly worded agreements, particularly if the principal has gone to non-specialist lawyers for guidance.
We were recently instructed by a client who wanted to sell his share in a partnership. He had a written agreement, but it was very poorly drafted. There were no provisions specifying what should happen if one of the partners wanted to leave. There was no stipulation that said it should be offered to the other and if they didn't want to purchase then the practitioner could sell it on the open market, and there was no defined method of valuation.
In this instance, the only options were either that the continuing practitioner purchased the share or, if the continuing practitioner wasn’t happy with it being offered to a third party, the whole practice would have to be sold.
If there was a properly considered agreement this wouldn’t have been the case and there would have been a clear pathway describing the next steps, mitigating any anxiety or confusion.
Always turn to a specialist
There are of course a multitude of elements that need to be thought about when entering or even reinforcing a business relationship. By choosing to use a specialist lawyer and going through every aspect of an agreement principals are forced to consider all factors and eventualities.
It is essential therefore to seek specialist advice to make sure the right clauses are present and that the business can achieve its objectives. This ensures that everything is clearly set out from the beginning and should a dispute occur, a satisfactory resolution is a far more likely prospect.
John Grant of Goodman Grant, Lawyers for Vets