New practice partner? Review your ownership protection

A new partner joining your practice is a sensible point to review ownership protection. The agreement may now reflect different interests, capital contributions and responsibilities, while the insurance arrangements still reflect the previous owners.

The aim is to bring the documents and funding into line. BMA guidance identifies the partnership agreement as a key document for an incoming GP partner and recommends reviewing matters including profit share, capital and premises arrangements. [1]

Record each owner’s actual interest

Start with the legal structure. A traditional GP partnership involves partnership interests, not ordinary company shares. A limited liability partnership, or LLP, has members with membership interests. A company limited by shares has shareholders. The documents and protection arrangements need to suit that structure. [2]

For an NHS GP practice, check contract holder eligibility with your solicitor. BMA guidance for England highlights restrictions on LLPs holding General Medical Services, or GMS, contracts. Do not assume an LLP is an interchangeable alternative to a traditional GP partnership. [3]

Write down each owner’s interest before and after admission. For a partnership, record profit sharing, capital accounts and premises interests separately. BMA notes that a new partner may reach full profit parity over time and may introduce capital in stages. Do not assume that one percentage describes every entitlement. [1]

Agree the value the documents require

Your insurance amount should relate to the interest that would need to be purchased or settled under the agreement. A figure agreed when the previous owners arranged cover may no longer fit the revised ownership.

Ask your accountant and solicitor to confirm how the interest is valued, who determines that value and when it is reviewed. An agreement might specify a fixed value or a valuation method. The resulting purchase price can differ from the insurance proceeds if the arrangement is not kept current. [4]

For GP practices, clarify how capital and any premises interest are treated. BMA specifically recommends checking the valuation provisions for practice premises. [1] Do not apply a generic company valuation formula to a GP partnership without specialist advice.

Also agree what happens if insurance proceeds fall short of the required payment. Instalments may be an option under some agreements, but their terms need to be decided rather than assumed. Legal & General’s specimen agreement illustrates provisions for both shortfalls and excess proceeds. [7]

Match insured events with exit terms

Partnership and shareholder protection can provide a lump sum following a valid claim for an insured event. Depending on the policy, this may include death, defined terminal illness and specified critical illness where that cover is selected. The money can help fund an ownership purchase. [5]

Being too unwell to practise does not automatically meet a critical illness definition. Conditions, required severity and exclusions vary. Read the policy alongside the agreement’s illness provisions, rather than assuming they use the same test. [6]

Voluntary retirement is not itself an insured event under this cover. It needs a separate funding plan, even if retirement provisions appear in the ownership agreement. Insurance also does not itself transfer shares or partnership interests. The legal arrangement governs the relevant rights and obligations. [4] [5]

Check agreements, trusts and payment recipients

Ask your adviser and solicitor to review the partnership or membership agreement, or the company’s shareholder agreement and articles, alongside any ownership purchase agreement. A cross option agreement gives parties rights to require a purchase or sale in defined circumstances. Illness provisions may instead use a single option so the affected owner is not automatically forced to sell. Suitability depends on the arrangement. [2] [5]

Check that the new owner has formally joined the protection arrangement. Some providers may require a supplemental agreement, appropriate additional cover and trust documentation when new owners join. That is not a universal template, but it shows why admission involves more than adding a name to a policy list. [4]

Where trusts are used, confirm the trustees, beneficiary wording and intended payment recipients. Ask whether premium allocation needs reviewing. Do not reuse a company shareholder form for an LLP or traditional partnership without advice. [2] [7]

Prepare one coordinated review

Before the review, gather the signed ownership agreement, admission documents, current ownership schedule, accounts and valuation evidence. Add every relevant policy schedule, trust deed and ownership purchase agreement.

Ask your solicitor, accountant and protection adviser to reconcile them. Confirm the interests covered, insured amounts, policy terms, recipients and remaining funding gaps. Do not cancel existing cover before advice on any replacement and confirmation that required new cover is in force. [6]

Speak to Broadbench about Shareholder Protection and how the insurance arrangements could support your practice’s agreed ownership plan. Broadbench can review protection needs while your solicitor and accountant advise on legal and tax matters. [8]

*This article provides general information, not personalised insurance, legal or tax advice. Cover is subject to underwriting, policy terms, conditions and exclusions. Tax treatment depends on individual circumstances and may change.*