No matter the working relationship between dentists within a practice, it is always advisable to have a formal agreement drawn up. In some cases, practitioners choose to set up an expense sharing agreement as an alternative to a ‘traditional’ partnership. As it says on the tin, an expense sharing agreement involves two or more dentists working alongside one another, sharing practice expenses which include (but are not limited to):
employees’ wages – where employees are jointly employed by the parties
equipment – purchasing, repair and maintenance
stationery, printing and postage
bank charges in relation to any joint accounts
accountants fees – where those accountants are jointly retained
There may also be expenses that you do not wish to share and intend for these to be paid by each party individually. These can include indemnity insurance premiums or GDC Registration costs. In this respect, an expense sharing agreement can be quite flexible, giving individual dentists the ability to maintain certain boundaries such as income, patient lists or personal assets.
In relation to any associate fees that may be incurred, these can be split between the parties as a joint expense. Depending on the set up of the practice, however, the cost of incurred fees could also remain the sole responsibility of one party, where you wish to engage your own associate, for example.
When working on an expense sharing basis, each party will retain any income or fees earned by them. This is different to a ‘traditional’ partnership where all income and fees are split, and all parties are jointly and severally liable.
In situations where any income, no matter how small, is shared – from a legal standing – you are in partnership and as a result, the Partnership Act will apply. Without any written agreement in place, the only remedy under the Partnership Act is for the partnership/practice to be sold to a willing third party. This does not allow one partner to buy out the other.
Regardless of the working arrangement at your practice, it is important to have written evidence of your agreement. There have been many situations whereby parties have nothing in writing and as a result, a dispute has occurred which can be quite difficult and costly to resolve.
On the flip side of this, where a written agreement is in place, it can specifically govern situations which would result in a party having an automatic right to terminate the agreement – such as one party being struck from the GDC register or being convicted of a criminal offence, for example. In this situation, you may wish to purchase the ‘leaving’ party’s practice before this is put on the open market. This is known as a pre-emption right and it means that you would have first refusal. The expense share agreement could set out how the practice will be valued in this situation. Upon a party ‘leaving’ the expense-sharing relationship, you may also wish to put in place restrictions to stop them from setting up shop next door, thereby avoiding any direct competition. Any restrictions must be reasonable in radius and duration, so doing this is dependent on your geographical location to some extent.
It is important to be aware that the terms of an expense sharing agreement can vary significantly and it is very easy to enter into a partnership by mistake. This might not be a problem if practitioners are getting on well with one another and the practice is operating smoothly. However, problems could occur further down the line when you come to retire or sell your practice. With this in mind, it makes sense that an expense sharing agreement should not be undertaken without appropriate legal support.
The team at Goodman Grant are well equipped to help you deal with the dentolegal challenges faced by many practitioners. We can assist in drafting an agreement that is tailored to suit practitioners’ individual needs, in order to protect each party’s interests in case a dispute ever arises. A written agreement will need to detail certain information, such as the conduct to follow in the event of the prolonged absence or death of a partner, for example. To help you navigate these elements of an agreement, it is always wisest to consult an experienced solicitor that can provide reliable advice and guidance.