Partnerships & Incorporation

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Cost-Sharing Agreement

A cost-sharing partnership refers to a relationship whereby two or more parties work together in one clinic and agree to share common costs. This agreement allows both parties to maintain separate client lists and charts and to bill their own clients. The partners share costs of the facilities, shared equipment, and shared staff, all of which are divided on an agreed-upon basis. In general, a cost-sharing agreement is easier to put together and easier to take apart than a shareholder agreement.

The cost-sharing agreement should describe in detail the respective obligations of the participating parties. Include the following information:

  • Names of the parties
  • Name of the clinic and who has the right to the name if the parties separate
  • How new clients will be allocated to the separate practices
  • Names on the property-lease agreement
  • List of common equipment and shared staff
  • Which expenses are shared and which are attributed to one party or the other
  • Statement of the right of first refusal if either party wants to sell their share
  • How the arrangement should be terminated if one partner dies, becomes disabled, or wishes to relocate or retire
  • Other points, such as the effective date and the term of the agreement

Corporations and Shareholders

A corporation is a legal entity. It consists of two or more partners who pool their income and their expenses. A corporation differs from a cost-sharing partnership because all of the income is owned by the corporation, not individually by each partner. The corporation pays all of the staff and expenses (supplies, rent, etc.) and is taxed on its net income as a legal entity. It also pays each of the partners a salary. Compared to a cost-sharing partnership, it is more complicated and more expensive to set up, and it is subject to more regulations and reporting requirements. Shareholders can sell their ownership by selling their shares in the corporation to others.

The shareholder agreement should include the following information:

  • Names of the parties
  • Procedures and circumstances for issuing additional shares
  • Loans and advances to the officers or shareholders
  • Declaration of dividends
  • Assets of the corporation
  • Whether any family members can be hired
  • Transfer of shares
  • Major contracts
  • Right of first refusal
  • How the arrangement should be terminated if one partner dies, becomes disabled, or wishes to relocate or retire
  • Any disagreement between shareholders including value of the shares and non-competition clauses