PART 3 OF 4: The Agreements That Govern Partnership

The documents that define how co-owners work together.

A partnership lives in its governing documents. The agreements executed when a partner joins define ownership, control, compensation, and what happens when an owner eventually leaves, and their quality determines whether the partnership runs smoothly or generates disputes. This part addresses the agreements every new partnership needs.

The ownership and governance agreement

The core document, often a shareholder agreement for a professional corporation, defines each owner's stake, voting rights, and how decisions are made. It should address which decisions require unanimity, which require a majority, and how the owners resolve disagreement, including potential deadlock between equal partners.

Compensation and income division

How owners are paid is among the most important and most contested terms. The arrangement should define how income is divided, how it accounts for differences in production and effort, and how shared overhead is allocated, in a way that respects both fairness and applicable compliance rules.

The buy-sell provisions

Every partnership should decide, at the outset, what happens when an owner leaves. Buy-sell terms govern several scenarios:

• Voluntary departure or retirement.
• Death or disability of an owner.
• Involuntary removal for cause.
• How a departing owner's interest is valued and paid out, and on what timeline.

Restrictive covenants

Partnership agreements will often include restrictions that protect the practice, such as non-solicitation provisions, and, where tied appropriately to ownership, non-compete terms that fit within California's limits. These must be drafted carefully to be enforceable under California law.

Getting the documents right

These agreements should be tailored for the specific practice, not just taken from a generic template. The terms interact with one another and with the practice's entity structure and compliance obligations, and a document that overlooks the practice's realities can create the very disputes it was meant to prevent.

How West Coast Health Law Can Help

We draft and negotiate the shareholder, compensation, and buy-sell agreements that govern a healthcare partnership, tailored to the practice and compliant with California law.

West Coast Health Law offers a FREE consultation which you may schedule by clicking the button on our website.

This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Laws change and every transaction is different; consult a qualified attorney about your specific situation.