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Australian Journal of Pharmacy : September 2006
pdl By Robert Toth and Kathy McCarthy* ARTNERSHIPS are a common arrangement among pharmacists, providing an opportunity to share costs and responsibility and to utilise the knowledge and experience of other pharmacists. Partnerships can also be the subject of dispute unless care is taken to set out each partner’s rights and obligations, not just entering into the partnership, but into the future. Ensuring your business is structured properly impacts on business efficiency, financial health and psychological well- being, and therefore is a key ingredient in effective service delivery to the pub- lic. If things go wrong, the distraction and disorganisation which ensues means service delivery can be compromised and the public placed unintentionally and unnecessarily at risk. Pharmacists looking to establish or join an existing partnership should be alert to potential pitfalls and take all steps to ensure that they are satisfied the pillars of the business are sturdy. The best way to do this is to ensure a detailed written Partnership Agreement (PA) is in place from the outset. Phar- macist partners often make the mistake of thinking that a PA is something that can be done further down the track. This is most unwise as it is difficult to negotiate issues once parties are entrenched in the business. Where there is no written PA, a part- nership can be implied into any rela- tionship where the parties carry on a business in common. An ‘implied’ part- nership will be governed by the relevant Partnership Act in each state or territory. The Act assumes that all partners will share in the profits equally. This may not always be the case, for example, when one party has contributed all of the start- up costs and the other party is taking on a day-to-day operational role, the part- nership may well be unequal. It is there- fore necessary to have an Agreement pdl risk management news Pharmaceutical Defence Limited chairman John Coppock Partnerships in pharmacy P which clearly reflects the equity position of each partner, capital or other contri- butions made, and entitlement to profit. Satisfactory to all parties The parties need to give careful consid- eration to the way they want the part- nership to work and what is to happen if someone wishes to retire. A pharmacist joining an established business will be looking for different things from a partnership than a phar- macist nearing retirement who may be looking to offer partnership to a younger pharmacist who will share the workload and who may look to building up their equity over time. The needs of all parties should be able to be accommodated in a PA. If this can’t be achieved then it may be a sign that the parties are not suited to become partners in the first place. Specific arrangements should be included to govern the admission or retirement of partners and serious consid- eration needs to be given to exit strategies: for example, first rights of option to acquire the interests of a retiring partner. The level of involvement of each party should also be considered as well as the entitlement to drawings from the practice. In addition to provisions dealing with incoming or outgoing partners, it is important that a PA sets out not just the obligations of the partners in terms of commitment to the business and finan- cial contributions but any limitations on powers that can be exercised without the prior knowledge and consent of the other partner and that there be appro- priate indemnities between partners. Legal and financial implications If things do go wrong, pharmacist part- ners can find themselves facing unex- pected liabilities. As partnerships are not considered a separate legal entity such as a company, partners are individually liable. Any debts incurred by one part- 10 ? THE AUSTRALIAN JOURNAL OF PHARMACY VOL.87 SEPTEMBER 2006 ner are borne by the other partners, so if a dispensing error is made, the liability which may flow will rest at the door of each pharmacist partner. It is vital to ensure professional indemnity insurance is sufficient to cover all activities carried on at the pharmacy, even when a part- ner is not actively involved in the day-to- day running of a particular pharmacy. It is possible in most states to register a partnership as a ‘limited’ partnership. This can limit the liability of one or more partners. However, this is unlikely to be suitable for many pharmacists, as lim- ited partners are prevented from partic- ipating in the management of the part- nership. Even those pharmacists who may want less participation in the busi- ness but retain a financial interest are unlikely to be willing to sacrifice input into the direction of the business. Generally, a partnership may be dis- solved at any time by a partner or notice, unless it has been entered into for a fixed term, and it will automatically dissolve on the death or bankruptcy of one of the partners. These general rules can be overridden by suitable provisions in a PA. A variation in the members of the part- nership means that all legal relationships and arrangements with suppliers and other parties should be re-negotiated to enable those retiring to be released and those new partners to become equally liable for the partnership liabilities. As in any business relationship, there is risk. The answer lies in ensuring that your relationship is well documented and well defined before you proceed. Robert Toth is a Partner in the Corporate Transactions & Business Services Group and can be contacted on ph. (03) 9612 7297 or by email email@example.com. Kathy McCarthy is a Partner in the Insurance Litigation Group and can be contacted on ph. 03) 9612 7286 or by email firstname.lastname@example.org. ¦