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Partnership Buy-outs
Multi-owner practices face the prospect of one owner choosing to leave because of retirement, relocation, change of career direction or similar reasons. In a few cases, the remaining owners must force an owner out because of legal, health or quality issues. In all of these circumstances, there is no substitute for a well-drafted ownership agreement signed by all parties that spells out what should happen in each of these circumstances.
Ideally, that agreement will set forth the steps each party must take, the procedure for determining the value of the departing owner’s interest, who will buy that interest, and the terms for financing the buy-out. In those situations, each owner’s exit strategy was likely discussed and planned well in advance. The buyer may be the practice itself, one or more of the existing partners, or an associate now working in the practice. While we are not attorneys, we have worked with many practices and their legal counsels by reviewing the terms of their agreement in light of our extensive experience with ownership transitions in veterinary practices. We can also work with the practice’s or an owner’s CPA to design a more tax-favored strategy for exiting ownership or for buying out a partner. We encourage partners to be as collaborative as possible during this process, rather than becoming adversaries to the practice’s detriment.
But sometimes there is no owners’ agreement, or the agreement was drafted many years ago and doesn’t deal with today’s realities. For example, the valuation clause may set forth a formula which significantly over- or undervalues an owner’s interest. Or the terms of a buy-out may be so favorable to the departing owner that the practice cannot afford the payments. Conversely, there may be no discussion of a buy-out price or terms, and each partner has a different practice value in mind. Perhaps one partner is not willing to buy out the other in a two-owner practice and an outside buyer must be found.
If you or your practice is facing any of these situations, we can help you explore your options and find a solution that works for the owners while ensuring the practice’s continued success.
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