Forming a veterinary partnership is often an exciting step toward practice growth, better work-life balance, and enhanced patient care. When two or more veterinarians decide to go into business together, they typically bring different skills, clientele, and resources to the table. But with those shared contributions comes one of the most critical—and potentially contentious—decisions: how to divide the profits.
Profit-sharing structures can make or break a partnership. A model that’s viewed as fair and transparent can motivate partners and strengthen the practice. On the other hand, unclear or inequitable terms can breed resentment and even lead to costly legal disputes. That’s why it’s essential to understand the available profit-sharing models and the legal considerations involved before formalizing any arrangement.
In this blog, we’ll walk through the most common profit-sharing models used in veterinary partnerships, explore the legal factors that must be addressed in your agreement, and offer guidance on how to avoid common pitfalls.
Understanding Profit-Sharing in Veterinary Partnerships
At its core, a profit-sharing structure outlines how net earnings from the veterinary practice will be allocated among partners. Unlike salary or guaranteed compensation, profit-sharing relates to the income left over after all operating expenses—including staff wages, rent, supplies, and other overhead—are paid.
How you split this income depends on a variety of factors, including each partner’s ownership stake, day-to-day involvement in the practice, contributions of capital, and performance. This arrangement should be customized to reflect the unique dynamics of your partnership and memorialized in writing to protect all parties involved.
Common Profit-Sharing Models
There’s no one-size-fits-all model when it comes to profit-sharing. The “right” structure will depend on your goals, contributions, and relationship with your partner(s). Below are the most common methods used in veterinary practices:
Equal Distribution
In this model, profits are split equally among all partners, regardless of how much time, money, or effort each partner contributes. While this approach can feel simple and egalitarian, it often causes friction if one partner consistently generates more revenue or works longer hours. Equal distribution only works well if partners are truly contributing in equal measure and share a common vision of fairness.
Equity-Based Distribution
Here, profits are divided according to each partner’s percentage of ownership in the practice. If one partner owns 60% of the business and the other owns 40%, the profits will be split accordingly. This model reflects the financial investment and risk each partner has taken on. It’s especially useful when partners have invested different amounts of capital into starting or acquiring the practice.
Performance-Based Distribution
In performance-based models, profit is distributed based on metrics such as revenue generated, number of patients seen, or even hours worked. For example, if Partner A brought in 70% of the practice’s revenue that month, they might receive 70% of the profits. This model rewards productivity and can be motivating—but it requires careful tracking and mutual agreement on what metrics are fair and measurable.
Hybrid Models
Hybrid profit-sharing combines elements of equity-based and performance-based approaches. For instance, 50% of profits might be divided according to ownership percentage, and the remaining 50% distributed based on revenue generation. Hybrid models offer flexibility and can better account for both ownership and workload—but they also require more detailed recordkeeping and agreement on performance measures.
Legal Considerations in Profit-Sharing Agreements
Regardless of which model you choose, the profit-sharing structure must be clearly documented in your partnership agreement. Too often, partners enter into informal arrangements with verbal understandings that later lead to disputes when expectations don’t align. Here are key legal issues to address in your agreement:
Clearly Defined Terms
Your agreement should spell out exactly how profits are calculated (e.g., before or after certain expenses), when they’ll be distributed (monthly, quarterly, annually), and what financial information will be shared among partners. The more transparent the terms, the less likely conflict will arise down the line.
Roles, Responsibilities, and Compensation
If one partner handles more administrative duties while another focuses on clinical work, this should be reflected in the compensation structure. Be clear about what counts as profit-sharing income versus base salary, and specify how each partner will be compensated for different roles within the practice.
Decision-Making Rights
Disagreements over financial decisions can strain even the strongest partnerships. Your agreement should outline how decisions about major expenditures, hiring, expansions, or equipment purchases will be made. Will each partner have equal say? Will decisions require a majority or unanimous vote?
Dispute Resolution
Even the best-written agreements can’t prevent every disagreement. Including a mechanism for resolving disputes—such as mediation or binding arbitration—can help partners address issues quickly and privately, without resorting to litigation.
Exit and Buyout Terms
What happens if a partner wants to retire, sell their interest, or leave the practice? Your agreement should define the buyout process, how the departing partner’s share will be valued, and whether the remaining partner(s) will have the right of first refusal to purchase that interest.
Compliance with Tax and Legal Regulations
Profit-sharing arrangements can have significant tax consequences, especially in partnerships that elect to be taxed as pass-through entities. Work with a legal and tax advisor to ensure your structure complies with state and federal laws, and that each partner understands their tax responsibilities.
Final Thoughts
A thoughtfully structured profit-sharing arrangement is essential to a healthy and successful veterinary partnership. The right model will reflect the reality of your contributions, promote fairness, and reduce friction over finances. But perhaps more importantly, a legally sound agreement ensures that expectations are aligned—and that you have a solid framework to rely on if things change. Before entering into a partnership or adjusting your current structure, consult with an attorney who specializes in veterinary law. They can help you draft or review a partnership agreement that protects your interests and helps your practice thrive.
Contact Dental & Medical Counsel for Help Structuring Veterinary Partnerships
At Dental & Medical Counsel, we understand the unique challenges veterinary professionals face when entering into partnerships. Whether you're drafting your first agreement or restructuring an existing one, our team can help you design a profit-sharing model that promotes fairness, supports long-term success, and protects your interests. With decades of experience advising veterinarians nationwide, we’re here to guide you through every legal step of your journey. Contact us today to speak with an attorney about your veterinary partnership.
Frequently Asked Questions
Q: Can partners split profits equally even if they don’t work the same hours?
A: Yes, but it often leads to tension. Equal splits work best when partners contribute similarly. Otherwise, consider equity- or performance-based models.
Q: What if my partner and I disagree on how to divide profits?
A: Your partnership agreement should outline how profits are shared and how disputes are handled. Mediation clauses can also help resolve disagreements.
Q: Is it legal to split profits based on production?
A: Yes, performance-based profit-sharing is legal and common, but it must be clearly defined and agreed upon in the partnership agreement.
Q: Do I need an attorney to set up a profit-sharing agreement?
A: It’s strongly recommended. A veterinary attorney can help you avoid vague terms and protect your legal and financial interests.
Q: Can our profit-sharing model change over time?
A: Yes, but any changes should be documented with a signed amendment to the original partnership agreement to ensure clarity and enforceability.
Q: How are profits calculated in a veterinary partnership?
A: Profits are typically calculated as revenue minus expenses. You’ll need to agree on what counts as deductible expenses in the agreement.
Q: Should we account for management duties when splitting profits?
A: Absolutely. If one partner handles more administrative or managerial responsibilities, their compensation should reflect that.
Q: What happens to profit-sharing if a partner leaves the practice?
A: Your agreement should specify how departing partners are compensated and how their share of profits is handled before and after exit.
Q: Are hybrid profit-sharing models common?
A: Yes. Many veterinary practices use a mix of ownership percentage and production metrics to create a balanced and flexible structure.
Q: What tax implications should I be aware of?
A: Profit-sharing income is usually taxed as pass-through income. Work with a tax advisor to understand your reporting and withholding obligations.
At Dental & Medical Counsel, we've been instrumental in realizing the practice goals of countless veterinarians. Whether you're looking to purchase, launch, or sell a veterinary practice, our expertise is your guide. Beyond the initial stages, we're committed to ensuring your veterinary practice remains legally compliant.
We provide comprehensive support, including employment law protections, veterinary contract reviews, and assistance with veterinary employment agreements. Additionally, we specialize in incorporating veterinary practices and securing trademarks. And for long-term planning, our services extend to helping veterinarians with succession and estate planning. Trust us to be your partner in every step of your veterinary practice journey.
.jpg?width=300&height=396&name=Ali%20Website%201_edited%20(1).jpg)
About Ali Oromchian, Esq.
Your Veterinary Lawyer
Ali Oromchian, JD, LL.M., is a leading legal authority in dental law and the founding attorney of Dental & Medical Counsel, PC, with over two decades of experience. His deep connection to dentistry comes from his wife's nearly two-decade-long career as a pediatric dentist.
This personal insight fuels his dedication to empowering dentists to navigate their legal challenges and achieve their practice goals. In doing so, Ali has helped thousands of doctors open their practices while maintaining legal compliance.
Ali is frequently quoted and contributes articles to dental publications, including the California Dental Society, Progressive Dentist, Progressive Orthodontists, Dentistry Today, Dentaltown, and The New Dentist magazines, further showcasing his commitment to the dental community.
Stay updated with industry news!
