All's fair in love and veterinary practice partnerships
Any veterinarian who's even remotely considering entering into a partnership needs to start watching the CBS television series The Good Wife.
So why would a veterinarian be interested in this subplot? Because it reveals considerably more truth than fiction regarding how professional partners often treat each other when their firm hits a bump in the road.The Good Wife nicely summarizes most of the typical disputes partners get into in any professional, practice-based business. It doesn't matter whether the partnership is in corporate form, an LLC or otherwise—partnership is a challenge. The show also points out the weaknesses and vulnerabilities of minority partners.
Buying in with hope
When a veterinary practice offers to allow an associate or other veterinarian to buy into the business, a multitude of legal and mental expectations come into play among all parties. One assumption is that all partners—who most commonly are also practitioners—will work as hard as possible to further the general interests of the practice. It's also taken as an article of faith that profits will be shared on a pro-rata basis according to the ownership share each partner holds. Finally, everybody also figures that each partner will be fairly compensated for his or her work in the role of employee.
Of course, as I like to say, "the courthouse is located at the intersection of assumption and disappointment." Litigation among frustrated partners happens every day. It happens on television. And it can happen at your veterinary hospital.
Assumptions vs. reality
Let's first consider what's not assumption but indisputable reality. First, the fact is that in order to buy in, a professional must actually buy his or her way in. This means there's a financial price that's required of the new partner, one that's paid in exchange for the package of rights he or she will acquire as part owner of the practice.
Second, a buy-in is not a buyout. This means that when an associate purchases an equity interest in a veterinary practice, she's a part owner, not the owner. She has no power to make key decisions independently or to steer the ship at all without the consent of one or more of the others.
This is where assumptions come in. Once the new partner buys in, she expects that she'll be treated fairly and equitably and be rewarded commensurately with her ownership share. But as a minority owner, she can't make that happen. So what might happen?
The other partners get bold. If there's one owner with more than 50 percent of the business, or any combination of partners who collectively own that much, they usually can borrow money, purchase equipment, hire consultants and build new buildings without getting approval from any of the other minority partners. When the controlling partner decides to borrow a large sum to create something along the lines of a Veterinary Economics Hospital of the Year, there could well be a subsequent reduction in the net end-of-year profit distributed to the remaining partners.
The seasoned partners probably have bank accounts that can handle that reduced income. But what about the new partner who's still paying off the loan that allowed her to become a partner in the first place? She may not be in a position to forego the expected income stream like the others.