A Buy-Sell agreement is pertinent to many different types of businesses. Today we will just talk specifically about doctors. Medical practices are different from other businesses, because there is usually a lot of income made, and it’s not a family business that you can pass on to your heirs, unless of course they become doctors as well.
Definition of a Buy-Sell Agreement – A buy-sell agreement is nothing more than an executed contract where all the owners agree as to how the practice will be valued at the time of one of the partner’s death or disability, and how the stock ownership will be purchased. Without such an agreement in place, an accident could bring a thriving business into the middle of a complicated legal proceeding.
Benefits of a Buy-Sell Agreement – Some physicians who see themselves as healthy and not susceptible to accidents also stand to benefit from such arrangements. Think of a younger and older doctor joining forces, the terms of how to purchase the other party’s interest out in case of a mishap can be negotiated from the beginning in fairest terms for both sides.
Just as in any type of business, it is essential that the practice carry on, even in the event of one or more of the partnering physicians not being able to practice medicine anymore. Any industry must have a continuous, orderly manner of conducting its practice. The medical one carries a burden that reaches beyond financial gains or losses. A patient wants to have the comfort of knowing that their physician’s office can easily and without hassle continue a treatment that needs to be followed closely.
A physician’s asset lies in his knowledge and experience. A doctor’s set of skills is hardly something that can be passed on to heirs. Because the sweat equity will have generated some income stream, it is only fair that a financial pay-out be agreed upon for the family members that would be left behind.
In the event of an incapacity or premature death of one of the key physicians, their early exit can force a practice to associate itself with unwanted seed capital. Having seen this happen on more than one occasion, I can tell you this is not a position you want to find yourself in. A Buy-Sell agreement would prevent finding yourself in such predicament.
The necessary components to a Buy-Sell Agreement – There are many workings within a successful implementation of a Buy-Sell agreement. The first one is to make sure to have it funded. This translates to having a reputable insurance policy in place. The premiums you end up paying to have this contract in place will well be worth its weight in gold. Not all Buy-Sell agreements are created equal. Some key clauses you want to ensure your attorney includes in it are: The cost of buying out the partner’s share in case of incapacity / death, a provision to buy out the ownership interest over time in the event of insufficient capital, the care of the family members left behind, and early buy-out options. These are just some of the issues you will want to address.