Partnership Agreements

The basic parameters of great agreements are standard to all businesses, but many midwifery practice groups operate with a partnership agreement that doesn’t address all of the basics. Worse still, some practice groups have no written agreement at all. The AOM has developed a template partnership agreement for your reference.

A clear partnership agreement provides clarity and guidance for unplanned occurrences. Addressing the “5 Ds” of partnerships can ensure continuity and a smooth transition of ownership.

1. Death

Without a partnership agreement, the death of a partner terminates the partnership. Even with a partnership agreement that explicitly says that death does not terminate the partnership, the death of a partner can place particular strain on a partnership. The partner’s financial interest in the practice group becomes part of their estate and must be calculated. Calculations of the partner’s equity in the partnership or the partnership’s repayment of loans made by the partner are easiest when clear financial policies are in place. For example, practice groups should consider: whether partners (or their estates) will be bought out when they depart or will leave equity in the practice group; what timeline might be appropriate for the practice group to pay the departing partner (if that is chosen); and how to calculate their contribution to the practice group.

2. Disability

From a simple impairment to a severe handicap, a partner’s capacity to work needs to be addressed. Practice groups may wish to consider what steps the partnership might be able to take if a midwife has a medical condition that prevents them from practicing, as well their human rights obligations. Further, a midwife who is unable to work as a midwife may ask for financial compensation, especially before qualifying for disability benefits. The midwife with a disability will likely also want to protect her caseload if she has every intention of returning to the practice group; however, the practice group may need to redistribute caseload, discharge clients, or hire a locum. Without clearly written parameters, misunderstandings can abound and if unanimity is required for decisions, decisions may not be possible if one partner is unable to participate.

3. Divorce

If a partner divorces their spouse or common-law partner, the interest in the partnership could be considered a part of the matrimonial assets. When a settlement requires that the value of all personally owned assets be considered for splitting, the value of the practice group, including ‘goodwill’ (i.e., the value of the practice group’s positive reputation) may be included. While the partnership agreement cannot protect the divorcing partner from this, it can protect the partnership assets. The partnership agreement should state whether this event triggers anything for the partner’s share and how to value the practice group for this purpose. Doing so may protect the practice group in the event that a partner asks for payment of his or her share to make an equalization payment to their spouse.

4. Disagreement

Naturally, there will be differences of opinion between partners. When such differences result in a stalemate, it can be debilitating. Partnership agreements can delineate steps to take towards resolution, such as facilitated discussions, mediation or arbitration, and include who will pay for these steps. An agreement can also describe when and how a partner could be removed. Without such an agreement, the only options would be to continue the partnership or dissolve it.

5. Departure

Even when practice groups work happily together, a partner will eventually decide to leave for other opportunities or to retire. Practice groups can outline in the partnership agreement how much notice is required, whether the partner’s investment in the practice group must be bought out (which is uncommon in midwifery), how the practice group’s financial value will be calculated, and whether there will be a non-competition clause (which often is not legally enforceable).
 
Of course, this is not an exhaustive list, but rather a checklist for discussion among all partners to clearly outline their initial expectations. It will cost far less to deal with these issues proactively than it would to deal with them when they arise if they have not been addressed clearly and in writing. It is much easier to agree on exit strategies when everything is running smoothly rather than trying to work out issues in a crisis mode.