PART 3 OF 4: Departure and Transfer Terms

What happens when an owner leaves or wants to sell.

Every partnership eventually faces an owner leaving, by choice, by circumstance, or against their will. The departure and transfer terms govern these events, and they are the provisions owners most wish they had gotten right once a departure actually happens. This part tours the departure and transfer terms.

Buy-sell provisions

The agreement should include, or be paired with, buy-sell provisions that govern what happens to an owner's interest on departure. These provisions address who can buy a departing owner's interest, how it is valued, and how the buyout is paid, across the range of departures from retirement to death. Clear buy-sell terms turn a disruptive event into an orderly process.

Transfer restrictions

The agreement should restrict how owners can transfer their interests, so that ownership cannot pass to outsiders the other owners did not choose, and so that it stays in eligible hands:

• Restrictions on transferring an interest to a third party.
• Rights of first refusal for the practice or the other owners.
• Rules ensuring any transfer keeps ownership compliant.

Valuation

A central departure term is how a leaving owner's interest is valued. The agreement should specify a method, whether a formula, a set price, or an appraisal, rather than leaving it to be negotiated during a departure, when agreement is hardest to reach. The valuation method is one of the most consequential provisions in the whole agreement.

Involuntary departure

The agreement should address departures that are not voluntary, such as the loss of a license, disability, death, or removal for cause. Each calls for its own terms, and often for terms different from a voluntary exit. Anticipating these events in advance spares the practice from improvising through a difficult situation.

Why these terms are negotiated at the start

The departure and transfer terms are agreed when the partnership forms and everyone is aligned, precisely because they are so hard to negotiate once a departure is imminent. An owner who is leaving, or whose interest is being bought, has very different interests from the ones who remain. Settling these terms up front is what keeps a departure from becoming a dispute.

How West Coast Health Law Can Help

We draft the buy-sell, transfer, and valuation terms that govern how owners leave a healthcare practice, so a departure stays orderly and keeps ownership compliant.

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 agreement is different; consult a qualified attorney about your specific situation.