To complement the article “Partnerships: Should You Work With Someone or Go It Alone?” in the August 2015 issue of MASSAGE Magazine. Summary: Before entering into any kind of business partnership, massage therapists should understand the many legal aspects involved.
In many ways, the legal aspects of setting up a partnership mirror the psychological ones.
If you operate as a sole proprietor, which is probably the simplest business type, you still must have licenses, keep insurance, pay taxes and meet other legal obligations.
If you are involved in a partnership, there are additional considerations. Contracts, exit strategies, divisions of profits and losses—all things prospective partners need to agree on before deciding to enter a partnership—are reflected in the legalities surrounding a formal business agreement.
Legal Aspects of Partnership
Although we use the word partnership in many contexts, it has a very specific legal definition.
“Partnership is a very clearly defined legal term: two or more people conducting business for a profit,” said Chris Hennen, an attorney with the firm Chambliss, Bahner & Stophel, in Chattanooga, Tennessee. “It’s really about being entitled to a share of the profit.”
Hennen added that a fairly common error is confusing the definitions of employee and partner. In a small-business situation, employees may feel they are contributing to the business in the way a partner would, but legally, only people who are “entitled to an on-going share of the profit,” Hennen said, can be considered partners.
“The first thing individuals should think about when making the decision to team up is whether an entity should be formed,” Hennen suggested. If you have been working as a sole proprietor, with fairly low liability, it may not have made sense to go to the expense of forming a separate business entity. However, when more people are involved and liability risks increase, a formal agreement is necessary.
There are several methods that can be followed to form a business entity, and the decision regarding which to choose depends on the goals of the partners. One method is for two (or more) sole proprietors to form a general partnership. Hennen said this is not a common route because the partners are personally liable for the business’ debts. In other words, your personal property could be at risk if your company were sued.
A second, much more common type of partnership is to form a limited liability company (LLC). In this case, the business is a fully independent entity.
A business entity can also be formed as a corporation, but corporations usually involve more than two partners. Once a company is formed, either as an LLC or a corporation, an attorney should be retained to see after its best interests.
“This can be a difficult concept to understand, and of course, nobody wants to hire more lawyers,” Hennen said. “But in an ideal world, the business venture or entity would have a lawyer who represents the entity, and individual owners should each have attorneys.”
That way, if things somehow go wrong, each owner has an attorney to represent his or her best interests, and there is someone who is most concerned with the best interests of the company.
Knowledge = Partnership Power
Before hiring lawyers, do some research, and look at some sample contracts. The more knowledge you have about the differences between types of partnerships, the kinds of things included in contracts, and how organizational structure impacts taxation, the more efficiently an attorney can help you.
“If two people come in and say, ‘This is what we want,’ the attorney will likely ask a few questions, review any documents, offer advice and set things up,” said Hennen. “It can be a very quick process.
“But, if two people come in and say, ‘We’re thinking about forming a partnership. What should we do?’ the attorney will explain things, offer options and educate them,” he added. “Then they may need to think about it for awhile, ask follow-up questions and so on. It can take much longer.”
Hennen said it is important to never trust a sample document and that an attorney should always, at the very least, review contracts.
Ethics of Partnerships
Hennen added that ethics should be a concern for bodywork professionals who are considering forming partnerships.
“One other thing when multiple professions combine is they consider their ethical rules that apply to their profession,” he explained. “Sometimes there are rules about, say, referrals. Something may be a violation of ethical rules if you refer someone to your partner [because it] can look like a kickback.”
The contract provides a road map for resolving disagreements, and guiding people into and out of the partnership.
“My advice is to make sure to have a firm contract that stipulates rent, expenses and responsibilities with a clear start and renewal date when working with any kind of shared practice or partnership,” suggested Lisa Janice Cohen, a retired physical therapist in the Boston, Massachusetts, area, who has been involved in partnerships.
Some of the most important points to include in a contract include:
- How will profits and losses be divided?
- Who will own the intellectual property, such as the brand?
- How long will the partnership last?
- What is the exit strategy for individuals?
- How will employees be hired, dismissed, compensated and retained?
- What is the liability of the business? What kinds of insurance coverage are required?
The contract is a formal statement of agreement on those overarching, theoretical points that are necessary for a successful partnership, according to Leo Loukas, a counselor with Chicago Therapy Solutions in Chicago, Illinois—along with the practical steps required.
Finally, Hennen said partners must plan for when things go wrong—while things are good.
“One of the most important things, and things we see most often, is when things have gone bad,” he said. For example, he said, “in the beginning, when everyone is in a cooperative frame of mind, is the best time to talk about what happens when someone dies or sells to a third party.”
Early in the partnership, no one wants to talk about what will happen when someone decides to leave—and if that actually happens, emotions can run high.
Plan to Succeed
With advance planning and clear communication, creating a professional partnership is not only do-able, it can lead to collaborative success for your massage practice.
About the Author
Dava Stewart is a freelance writer from Chattanooga, Tennessee. Most of her work focuses on the intersection of health care, technology and business. She also gardens, has too many pets, and loves hiking and cooking. She wrote “Partnerships: Should You Work With Someone or Go It Alone?” for the August 2015 issue of MASSAGE Magazine.