Tying the Knot: Partnership Agreements and Shareholders Agreements: Why Your Business Needs One
Key contact: Aisha Wardell
The health and social care sectors play a crucial role in society, providing essential services to vulnerable individuals. We look at the importance of a Partnership Agreement or Shareholders’ Agreement in the health and social care sectors particularly – and the risks of a poorly defined business framework.
Operating in the health or social care sector means that trust, compliance and stability are paramount. It’s unsurprising, therefore, that both sectors are subject to complex regulatory requirements. Establishing a clear and structured business framework is vital and one key component of this framework is a well-drafted Partnership Agreement or Shareholders’ Agreement. These agreements serve to define roles, responsibilities, and dispute resolution mechanisms, ensuring the smooth operation and long-term success of the business.
What Is a Partnership Agreement or Shareholders’ Agreement?
A Partnership Agreement is a legally binding contract between business partners that outlines the operational structure, financial arrangements, and management responsibilities. A Shareholders’ Agreement, on the other hand, applies to companies with multiple shareholders and governs the relationship between them, setting out rights, obligations, and how decisions are made.
Both types of agreements aim to prevent misunderstandings, reduce conflicts, and protect business interests, particularly in the highly regulated and sensitive field of health and social care.
Why are these agreements essential in health and social care?
1. Clarity on roles and responsibilities
Health and social care businesses often involve diverse stakeholders, including medical professionals, care providers, and administrative personnel. A clear agreement ensures that each party understands their role, thereby avoiding confusion and inefficiencies.
Lack of clarity on roles and responsibilities can often lead to conflicts between partners or shareholders, as parties clash over strategic direction, service offerings or expansion plans, or over day-to-day issues such as workforce management.
Says Aisha Wardell, head of Litigation & Dispute Resolution: “It doesn’t matter how well you think you know your fellow partner or shareholder, having a clear and binding agreement in place is necessary to avoid future conflict.”
3. Financial stability and profit distribution
Financial arrangements, including capital contributions, profit sharing, and reinvestment policies, are clearly defined in these agreements. This transparency helps prevent disputes over financial matters – for example disagreements over profit sharing, investment of capital or time, or reinvestment versus dividend distribution – and ensures sustainability.
5. Exit strategies and succession planning
An agreement establishes procedures for handling situations where a partner or shareholder wishes to leave the business, retires, or becomes incapacitated. This ensures continuity of care for service users and protects the business from instability. Without clear processes for exits and succession, businesses can also face disputes over how shares should be valued and sold.
6. Protection of Intellectual Property and Confidentiality
Health and social care businesses often develop proprietary systems, care methodologies, or patient databases. An agreement can outline how intellectual property is owned and managed, as well as confidentiality clauses to protect sensitive patient and business information. Furthermore, without a framework for confidentiality or non-compete policies, your business could be hit if a departing partner poaches staff, clients or business.
Key elements of a strong Partnership Agreement or Shareholders’ Agreement
A robust Partnership or Shareholders’ Agreement in the health and social care sector should include:
- Roles and responsibilities of each partner/shareholder
- Governance and decision-making procedures
- Financial contributions and profit-sharing arrangements
- Regulatory compliance obligations
- Dispute resolution mechanisms
- Exit and succession planning
- Confidentiality and data protection clauses
- The need for robust dispute resolution mechanisms
Disagreements can arise in any business, and the health and social care sector is no exception. A well-structured agreement provides predefined dispute resolution mechanisms, such as mediation, preventing conflicts from escalating and impacting service delivery.
If you need help with developing your dispute resolution mechanism, or are faced with a dispute, contact our Litigation team. For advice on establishing a Partnership Agreement or Shareholders’ Agreement, contact our Corporate Team.
