First, let’s make sure there is no confusion about what buy-sell agreements are and are not. Buy-sell agreements are not asset or stock purchase agreements that are drafted to buy or sell a dental or medical practice between unrelated parties. Our healthcare attorney in Maryland and DC draft and review buy-sell agreements as part of business planning for our dental and medical practice clients and are intended to foresee and address any ownership issues that may arise in the future if a practice has more than one “owner.” In fact, buy-sell agreements are rarely a separate document; instead, they are provisions that are usually included in shareholders’ agreements, operating agreements, and partnership agreements.
THE PURPOSE OF BUY-SELL AGREEMENTS IN DENTAL & MEDICAL PRACTICES
The purpose of entering into a buy-sell agreement is to deal with certain contingencies if one or more owners wants to sell her/his interest in the practice, passes away, becomes disabled or incapacitated, divorces, or if there is a partnership dispute among the owners. You can immediately tell by reading the tealeaves that if your partner suddenly decides to sell her/his interest in your mutually owned practice, you may find yourself to be partners with a complete stranger, a nightmare that no one wants in their lives.
Similarly, if your partner passes away, the estate of your deceased partner could potentially sell your deceased partner’s interest to another licensed professional without your approval, unless you have the proper documentation in place. Please read my article on divorce law for doctors and dentists who own private practices to learn more about what happens to the private practices of dentists and doctors in divorce cases.
But it is worth mentioning here that a practice owner’s interest may be considered martial property (or partial marital property) and subject to equitable division of marital assets. Buy-sell agreements are one of the provisions that you could put in place now to avoid and/or minimize the effects if you or your partner will be divorced. Please read the article for more details.
HOW BUY-SELL AGREEMENTS WORK
Our healthcare attorneys in Maryland and DC draft buy-sell agreements so that they devise a process and/or formula regarding what should happen to a partner’s interest in a mutually owned dental or medical practice should one of the scenarios mentioned above occur. A buy-sell agreement should provide you with an option to buy your partner’s interest in your dental or medical practice, which is usually referred to as the right of first refusal or option to buy.
A well-drafted buy-sell provision should include a pre-determined price or a formula for deciding the purchase price for your partner’s interest if you decide to exercise your first right of refusal. Buy-sell agreements are a perfect example of how having the proper legal structure and documents in place could avoid or minimize uncertainty and potential legal headaches that could cause substantial legal and attorney’s fees to litigate in court.
A. Shane Kamkari, Esq.
Healthcare Attorney in Maryland and DC
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