Yes, it may do. Under the Partnership Act 1890, a partnership will automatically come into existence between opticians as soon as their activities satisfy a very straightforward legal test, namely that they: “carry on business in common with a view to profit”. Contrast with a forming a new limited liability company where there is a considerable amount of paperwork to be filed at Companies House together the prescribed formation fee.
You might be thinking so what. But there are consequences of forming a legal partnership under the Partnership Act 1890. Opticians who have business relationships with their colleagues should be aware of three fundamental principles of partnership law:
- First, all of the optician partners will be jointly liable for the debts and obligations of the optician partnership business and they will also be jointly and severally liable for the wrongful acts or omissions of their fellow partners in the ordinary course of the optical partnership business.
- Second, each of the optician partners has the right to participate in the management of the optician partnership business, unless the partners agree otherwise.
- Third, the optician partners are entitled to share equally in the capital and profits of the optician partnership and must contribute equally towards losses, unless the partners agree otherwise.
So what do you do if you don’t want any of these rules to apply to you? A good start point would be say so, in a written document, signed by everyone. You could say something like “our relationship relating to XYZ is not a partnership”. Better still you could form a limited company to put the matter to bed.
It may in fact be the case that there is one optician in a group of opticians who own the freehold or leasehold to the optician practice premises. They then rent rooms and other facilities of the optician practice to other optometrists e.g. locum opticians. The other opticians may be described to the customers of the optician business as partners of the optical practice in a purely commercial sense, but in a strict legal sense, they have no partnership rights whatsoever. All in all, there may be a number of different legal relationships in place. Care will be needed to be clear exactly what those relationships entail, and ensuring that they are documented correctly.
Do you need a partnership agreement?
The main purpose of any legal agreement is to record and evidence the intention of the parties to that agreement. The partnership agreement for opticians will therefore record the intentions of the optician partners in business together. Significant and long term partnerships between opticians may need fairly comprehensive partnership documentation to provide rules concerning the inevitable ups and downs of life.
Areas covered in an optician partnership agreement
The optician partnership agreement can cover numerous areas, and become a fairly substantial constitutional document in its own right. However, the following are the key areas that we recommend are included in all partnership agreements for opticians:
- Intended structure of the optical business, and provisions regarding any necessary changes following tax and legal advice.
- Ownership of the partnership assets i.e. will ownership of all assets be in the name of the business or the optician partners individually.
- Decision making rules. So, for example, which opticians can sign cheques? Which opticians can bind the partnership practice to contracts? How often will the optician partners have to meet? If the optician business is deadlocked, then how is the deadlock between the opticians to be resolved?
- What contributions do the optician partners need to make? For example, will the opticians in partnership be required to contribute to the optical business from their own funds. A classic scenario would be investment in new equipment for the optical business. Will the opticians be required to work full time, or can they locum in other optician practices?
- If an optometrist dies then what are the pre-emption provisions in terms of offering the deceased optometrist’s share in the optician partnership back to the surviving partners? What price should be provided? How will the valuation be decided? Will life insurance be required to fund the purchase of the deceased optometrist’s share?
- Regulatory aspects regarding each optician partners legal right to practice.
- Exit planning generally. For example, will the optician partnership agreement include a right for the optician partners to sell their stake at any time? Will the remaining optician partners be required to buy-back the optician partner who chooses to depart at any time? What happens if the relationship between the optician partners breaks down, or one optician party suffers a serious accident or illness?
For more information please Spencer Laymond at Curwens LLP on (020) 8363 4444 or email at spencer.laymond@curwens.co.uk.
