Who would be a partner?

A few years ago it was almost unheard of but today more practice managers are becoming partners in their surgeries. Solicitor Michael Royden looks at the pros and cons when considering an offer.

Sometimes advice is sought by the practice and in other cases it is the practice manager seeking guidance having been approached regarding the prospect of becoming a partner. In either case there will be pros and cons in any proposed arrangement and this article considers the perspective of the practice manager.

Recognising a key role

A report published in 2013 found that just over four per cent of UK practice managers were partners in their practices (based on a survey of 600 managers) and it is a growing trend.

Obviously the thinking behind practice managers becoming partners is that most already play key roles in the day-to-day running and ongoing development of their practices. They may have assisted the practice to grow over the years, showing a great deal of commitment and loyalty along with having valuable experience. Often the practice manager is one of the few constants in a practice over a significant period of time.

The main distinction between being a salaried practice manager and acting as a partner is that all partners are self-employed. It is important to note that there is no distinction in legal terms between categories of partners – so if a practice manager becomes a partner they act in that role in just the same way as a GP partner. There is also no distinction so far as the outside world is concerned.

Advantages of partnership

There are a number of potential advantages to being a partner in the practice as opposed to being an employee. First, there is the potential to benefit from growth in the profits of the practice. This depends on the profit arrangements but if the practice as a whole generates more profits than budgeted in any given financial year, a practice manager partner would normally benefit from an increased profit share. Having said that, the converse also applies. A worse than expected year will result in a reduced profit share for a non-clinical partner. The practice manager partner therefore sacrifices the certainty of a salary in exchange for the potential of a larger windfall by way of profit share.

Second, a partnership is often seen as a recognition of status within any type of business, including a GP practice, and the appointment of someone as a partner recognises their position within the practice. This of course assumes that the other partners within the practice (the GPs) actually recognise a practice manager partner as being on an equal level. This is not a guarantee in some practices.

A practice manager partner, being self-employed, would also be taxed accordingly. There are certain benefits to being subject to self-employed taxes rather than being taxed as an employee. The flip side of that benefit, of course, is that being self-employed a PM partner will lose employment rights and other related benefits that go with being an employee. This is something that should be carefully weighed-up when considering an offer of partnership.

Downsides

Alongside the benefits of partnership there are unfortunately some downsides. First and perhaps most importantly, each partner in a practice is jointly and severally liable along with all other partners for the obligations of the practice. A third party who is owed any form of obligation by the partnership can look to any one or more of the partners to satisfy all or any part of the liabilities owed to them by the partnership. An example might be a bank where there are borrowings. This is a very important distinction between partnership status and employment, and is probably one of the key areas of concern for any practice manager who is considering becoming a partner.

On that front, it would be appropriate for a practice manager partner to seek an indemnity from the other partners so that if they end up with any liability arising from their partnership, the other partners would make good the loss suffered by the non-clinical partner. This may be something that the GP partners would have a difficulty with granting.

Of course, the benefit of having an indemnity only exists if the other partners can actually pay up under that indemnity. A practice manager partner would therefore be relying upon the GP partners to have sufficient assets to meet any liabilities which they owe under that indemnity.

It may be appropriate for the partners as a whole to agree a division of responsibilities between clinical and non-clinical partners so that it is clear between them who has responsibility. This doesn’t change things so far as the outside world is concerned, but it would mean that within the partners as a group there would be a clear division of responsibility.

Partnership agreement

It may be appropriate to record how decisionmaking will be undertaken within the practice. There may be certain matters that the non-clinical partners should have a role in and others which should be left solely to the clinical partners, and that should be recorded for future reference.

In regard to all of these matters, it would be essential that a partnership agreement is put in place which records the agreement between the parties and this should be tailored to reflect the presence of non-clinical partners within the practice.

In summary…

Taking all of the above into account, practice managers may have some genuine concerns in considering whether to become a partner in their practice. Having said that, with appropriate advice and entering any arrangement with eyes open, individual practice managers can work comfortably in partnerships, enjoying the potential for a higher return from the practice in the longer term. A practice manager not comfortable with such risks might find other alternative arrangements more appropriate to “incentivise” remaining with the practice and contributing to growth. One alternative might be some form of bonus arrangement linked to profit levels within the practice.

In considering an offer of partnership, it is advisable for practice managers to seek specialist legal and accountancy advice. This will ensure you have all of the necessary guidance needed to make a decision.

Michael Royden is a partner with the medical team within the Scottish legal firm Thorntons and a member of the National Association of Specialist Solicitors advising Doctors