PART 1 OF 4: What a Buy-Sell Agreement Does

The plan every co-owned practice needs before it needs it.

A buy-sell agreement governs what happens to a co-owner's interest in a practice when that owner leaves, for any reason. Without one, the departure of an owner can throw a practice into uncertainty, conflict, or even dissolution. With one, the process is defined in advance, when the owners can think clearly and fairly. Part 1 explains what a buy-sell agreement is, and why it matters.

The purpose of a buy-sell

A buy-sell agreement answers a set of questions before they become urgent: who can buy a departing owner's interest, on what terms, at what price, and how the payment is funded. By settling these in advance, the agreement will prevent the disputes and disruption that are bound to arise when owners try to negotiate them in the middle of a crisis.

Why practices need one

The events a buy-sell addresses are not hypothetical; every owner eventually leaves. A practice without a buy-sell risks:

• A deceased owner's interest passing to heirs who are not providers.
• A departing owner competing or being unable to be bought out.
• Disputes over what a leaving owner's interest is worth.
• Disruption to the practice's stability and the remaining owners' control.

When it applies

A buy-sell typically governs a range of departures, planned and unplanned: retirement, voluntary exit, death, disability, and removal for cause. A well-drafted agreement anticipates each of these, because they call for different terms and cannot all be handled the same way.

How it fits with other documents

The buy-sell provisions may stand alone or live within a broader shareholder or partnership agreement. Either way, they must work in harmony with the practice's other governing documents and its entity structure. Inconsistencies among these documents are a common source of trouble when a buy-sell is actually invoked.

The best time to create one

The ideal time to put a buy-sell in place is when the owners are on good terms and no departure is imminent, so the terms can be negotiated fairly and dispassionately. Waiting until an owner is leaving, or until conflict has arisen, will make fair terms far harder to reach.

How West Coast Health Law Can Help

We help co-owned practices put buy-sell agreements in place before they are needed, turning an owner's eventual departure into an orderly, pre-planned process.

West Coast Health Law offers a FREE consultation which you may schedule by clicking the button on our website.

This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Laws change and every transaction is different; consult a qualified attorney about your specific situation.