An attorney should draw up or at least review the business agreement, whether it is an addition of a partner to an existing practice or the complete sale of the practice. This helps protect the parties from misunderstandings. Prior to going to an attorney, all details of the business arrangement should be understood. This document is designed to give a general overview of a business agreement. It is not considered to be comprehensive but tries to alert the reader to some key areas to be aware of. Always consult an attorney when dealing with business agreements.
Existing debts should remain the responsibility of the seller as the buyer will purchase assets of the practice free and clear of all debt. Purchasing assets means all staff will have to be rehired by the new practice. This method is used to reduce any carry over liability or payroll taxes the seller might have incurred.
The sale should be completed through an escrow company or an attorney. States that allow bulk sale transfers protect the buyer from undisclosed liens on the assets being conveyed. The escrow company is responsible for carrying out transfers in accordance with the business agreement, similar to the real estate escrow process.
Specify what type of business structure is desired: sole proprietorship, partnership, corporation, associate/independent contractor relationship, shared overhead, or merger of two existing practices into one entity.
If you are relying on reports or information provided to you by the seller or a broker, include the documentation by reference to become an integral part of the agreement. This will help give you recourse against the seller and broker in case the data is inaccurate.
If the selling doctor will participate in any future activities of the business, the agreement should state in what capacity, for how long, and how they will be compensated.
Specify what is included in the purchase price--furniture & equipment, patient records, inventory, phone numbers, business name, etc.
Make sure there is a valid non-compete clause in the Agreement.
Partial Interest Acquisitions – When there is more than one doctor in ownership, the Agreement should specify how net income will be distributed, including draws and other payments. Options for income allocation can be based on many factors. One of the more equitable and easiest ways is to compensate each owner for days worked (per diem) with remaining income paid each quarter based on ownership percentage. This method provides adequate compensation to each doctor / owner when schedules fluctuate significantly or one owner routinely works fewer days than another.
Other compensation arrangements are more complex such as a percentage of production. A combination of methods can be used. Such as per diem with overage splits based on percentage of production. Whatever arrangement is used, it should be well documented, fair and understandable by all parties. Don’t over engineer the agreement as is will cause conflict and potential litigation.
The Agreement should also define non-monetary compensation that will be paid. Specify the amount of time all parties will work in the practice and provisions for variances. Include allocations for vacation and other time off.
It should be understood but not necessarily specified in the Agreement, who has what responsibility: such as management of the staff, inventory purchases, technology, facilities, etc.
Specify options for the termination or exit from the Agreement (including insurance funded buyouts in case of death or long term disability), sale of the practice, options to purchase, and rights of first refusal. Include how price will be evaluated, what will be included in the price.
The Agreement should designate that all owners are included in making major decisions. Major decisions generally include borrowing money in the name of the practice, pledging assets as collateral, material capital expenditures (equipment, real estate, etc.) or the sale of existing or additional ownership interests in the practice.
Good luck in your search for a practice to acquire. We hope these guidelines will assist you in the process.