Structuring pharmacy partnerships for long-term success

With a strong common vision for success, many pharmacists choose to enter a business partnership with trusted friends or colleagues. In many cases, the pharmacy operates smoothly, and the owners work collaboratively to make decisions about the day-to-day running of the business.

However, what happens when disagreements arise, circumstances change, or the partnership needs to end?

We strongly recommend that intended business partners take time to openly discuss, plan, and document agreed actions, processes, and contingencies for the life of the pharmacy business.

This may include scheduling regular planning meetings to prepare for the year ahead, clarifying each partner’s contribution to the pharmacy, and outlining consequences if a partner defaults on obligations. Common scenarios worth addressing include what happens if a partner’s registration is suspended or cancelled.

Voting rights

A well drafted agreement should outline the voting rights of each partner and specify whether certain decisions require unanimous consent (such as hiring or terminating staff, or extending lines of credit), regardless of differing voting rights or ownership percentages.

Finance and spending limits

The agreement should cover spending limits that require unanimous agreement and establish clear processes for payment authorisation. It should also address whether a partner can transfer their business interest to a third party and whether they must first offer it to the continuing partner.

Agreement breaches

The agreement may define what constitutes a default by a partner (for example, breaching the agreement, acquiring an interest in a competitor, insolvency, certain criminal offences, or loss of pharmacist registration). It may also include provisions allowing a non-defaulting partner to buy out the defaulting partner’s interest and remove them from the business.

Managing changing circumstances

Over time, circumstances will inevitably change. The agreement should contain rules for events such as retirement, permanent disability, or death of a partner. Does the remaining partner have the right to buy out the exiting partner’s interest?

Valuation and buy/sell agreements

A well-crafted agreement should include an agreed valuation methodology for buying out an exiting partner’s interest. Pharmacy businesses often require external valuation services due to their specialised nature.

To address funding for unexpected illness or death, partners often implement life or TPD insurance policies to cover each partner’s equity value. This ensures sufficient funds are available for the exiting partner or their beneficiaries, without burdening the business or remaining partners.

Typically, a partnership or shareholders’ agreement will reference a buy/sell agreement backed by insurance. It is important that these agreements align and are properly documented.

Competitive clauses

Partners may include a clause preventing involvement in a competing business during the partnership and/or for a set period after exiting.

Dispute resolution

A good agreement should include a dispute resolution process, ideally requiring mediation before legal proceedings. When a pharmacist consults Meridian Lawyers about a business dispute, our first question is whether a signed partnership or shareholders’ agreement exists, as this often provides a framework for resolution.

When no agreement exists

It’s never too late to negotiate and enter a binding partnership or shareholders’ agreement. However, we recommend doing so before acquiring a pharmacy interest to ensure clarity and shared expectations from the outset.

If you would like advice on pharmacy business matters, the team from Meridian can assist.