5 signs it is time to review your medical practice shareholders agreement
A shareholders agreement is the cornerstone of governance for any medical practice. This document sets out how decisions are made, how profits are distributed, and how disputes are managed. But it is not just a legal document, it is a rulebook for your medical practice. Despite it’s vital importance, all too often we see medical practices overlook their shareholder agreement. Either sits in a drawer or computer file gathering dust untouched and in many cases unsigned, while your medical practice grows and evolves. Or worse, your medical practice might not even have a shareholders agreement.
At You Legal, we see shareholder agreements as living documents. Your shareholders agreement should be relevant at all times, evolving alongside your medical practice as your team, structure and strategic direction change. That means regular reviews and timely updates are essential to ensure your agreement continues to protect your interests and support your success.
Below we set out five key signs it’s time to dust off your medical practice’s shareholder agreement (or put one in place) and book in for a review.
A new shareholder is joining (or leaving) your medical practice
One of the clearest indicators that the shareholder agreement for your medical practice needs attention is a change in ownership of the share structure in your medical practice.
Whether a doctor is buying into the practice, a partner is retiring, or someone is being bought out, these events significantly alter the dynamics of the business.
A company is made up of shares, each person (or entity) owning shares is entitled to a vote where the running of the company is concerned. A shareholders agreement governs how that business is run. If people have bought and sold shares but the document hasn’t been updated it means:
the person (or entity) leaving the practice will no longer own shares and should not be part of the decision making in the business; and
the person (or entity) buying shares needs to be given a say in the way the medical practice is run.
Without a properly updated shareholders agreement to reflect the changes in ownership, your medical practice:
risks there being a problem around share transfer procedures;
leaves the door open for valuation disputes for exiting shareholders; and
·minority shareholder rights could be overlooked or inadequately protected.
As a general rule of thumb, whenever there’s a change in ownership in your medical practice, it is vital to update the shareholders agreement before the transaction is finalised. This ensures expectations are aligned, and the new shareholder structure of your medical practice is reflected in writing.
2. The business structure of your medical practice has changed
Perhaps your medical practice has moved from a partnership to a company, or you’ve restructured for tax efficiency. These changes might seem purely operational, but they can have major implications for shareholder rights, director duties, and profit distributions.
For example, you need to assess whether:
dividends are still being paid fairly;
directors have expanded roles under the Corporations Act 2001 (Cth); or
responsibilities under the new structure been documented and agreed upon.
A mismatch between your structure and your shareholder agreement is a legal risk your medical practice can’t afford.
You need to make sure that your medical practice shareholders agreement reflects your actual business structure, especially where your medical practice has restructured recently.
3. External investment or an injection of capital
Private equity interest, investors who are not practitioners, or even internal funding injections can trigger a need to revisit your medical practice shareholder agreement.
When money enters the practice from external sources, it is important to ensure:
voting rights in your medical practice shareholders agreement are clearly defined and protected;
exit strategies and drag-along/tag-along rights are addressed; and
the new investor’s role in decision-making is transparent.
This is especially relevant for multi-location or high-growth medical practices attracting investor attention. Without an updated shareholder agreement, you run the risk of conflict over profit sharing, strategic direction, or even control of the business.
Consult with a lawyer before accepting any capital to ensure your shareholders agreement reflects the new shareholding and any bespoke investor rights.
4. The medical practice has changed direction
A pivot in business strategy for your medical practice, such as adding cosmetic procedures, launching a new practice location, or expanding into allied health, often changes the risk profile and strategic priorities of your medical practice. If your shareholders agreement is silent on these shifts, you may be:
exposing shareholders to new risks not accounted for in the original shareholders agreement;
missing an opportunity to realign on shared vision and values; and
ignoring important triggers for profit sharing or performance incentives.
This is especially true if your medical practice is growing fast. What worked when you had one location and three doctors may not serve a network of practices with diverse services and partnerships.
When strategy changes, revisit your existing shareholder agreement as part of your broader governance review of the medical practice.
5. A dispute or a close call
Disputes among business partners are more common than you think. Often, they emerge not from bad intentions, but from vague or outdated shareholder agreements. Perhaps a disagreement over dividend payments, work hours, or whether a shareholder can work for a competitor has already caused friction in your medical practice?
Your shareholder agreement should:
outline clear dispute resolution processes such a requirement to attend mediation before any matter resorts to litigation and court;
clarify expectations for roles, responsibilities and time commitments in your medical practice; and
include non-compete and confidentiality clauses to protect your medical practice.
If any of these are missing from your shareholders agreement, or if they’re no longer practical given how your business operates today, it’s time to make a change to your shareholders agreement. Updating your agreement before a dispute arises can save tens of thousands in legal costs and hours in stress.
If your medical practice has had even one governance scare in the past year, use it as a prompt to review your legal foundations.
How to review your shareholder agreement (without the legal headache)
Step 1: Book a consult
Speak with our expert legal team about your current structure and goals. We’ll review your existing agreement and identify gaps or outdated clauses.
Step 2: Identify the triggers
Following the review, we will walk you through a diagnostic process to flag any business events that should prompt a change in the agreement. This includes structural changes, exits/entries, or updated compliance obligations.
Step 3: Facilitate shareholder discussions
A key part of updating your shareholder agreement is making sure all shareholders are on the same page. We guide these discussions and help build consensus, especially when sensitive issues are involved.
Step 4: Draft amendments to your shareholder agreement
We draft updates to reflect your current business model, values, and vision, ensuring your agreement is practical, enforceable, and aligned with the Corporations Act and AHPRA standards.
Step 5: Finalise and sign
Once approved, we finalise the updated agreement, ensuring all parties sign and date it appropriately for legal effect.
Ready to review your shareholder agreement?
If your practice has gone through change, or you suspect your agreement is gathering dust and needs to be updated, it’s time to take action. And, if your medical practice doesn’t have a shareholder agreement at all, it is time to get one! We have a Fast Track Solution for this which you can purchase here.
Need Expert Advice?
Our team has extensive experience in legal advice for medical practices, including preparing new and amending existing shareholder agreements. To discuss your needs, contact our team here, and we will put you in touch with the best professional for your needs.