Veterinary medicine is similar to other practices in that much of it concerns both practical and legal considerations of business law. Selling your ownership interest in a practice or preparing for a major life event such as retirement will require that you take steps to protect your rights. The best way to do this is by using a buy-sell agreement.
This important contract can help you avoid unnecessary disputes with other owners of your practice and facilitate the process as smoothly as possible. Count on the dedicated attorneys of Mahan Law to advise you.
What is a Buy-Sell Agreement?
All business owners will at some point encounter major life changes such as retirement, disability, or even death. These will affect their interest in and ultimate fate of the business. It can happen to any business organization, including a veterinary practice.
The question then arises: what happens to that member’s share in the business? This is where a buy-sell agreement comes in. This contract allows owners of a veterinary practice to set the terms and conditions of either the sale or transfer of an owner’s business interests when a significant life event occurs.
What Terms Should the Buy-Sell Agreement Include?
The specific terms of your veterinary practice buy-sell agreement will depend on the unique features of your business. In general, however, your agreement should cover such matters as:
Which events trigger the agreement
Every business owner will experience something that will require them to sell their ownership and involvement in a practice. Some examples include:
- Death
- Retirement
- Withdrawal from the practice
- Legal or mental incapacity
- Disability or illness
- Disciplinary action or revocation of a veterinarian’s license
- Bankruptcy
- Divorce and other legal problems
- Internal disputes with other business owners
Certain events, like licensing board disciplinary actions, may require an owner to sever their ties with the practice so that the interests of the other owners are not jeopardized. Regardless, all of the above and other occurrences should be carefully defined so it is clear when the buy-sell agreement is activated and the process of business transition begins.
To whom the interest may be sold
The agreement should restrict who has the right to purchase a departing member’s share in the veterinary practice. For example, the buy-sell agreement may specify that only another veterinarian is allowed to buy into or acquire a share of the business. Also, the agreement may give the other business owners a right to purchase the departing owner’s share first, thereby disallowing the sale to someone the remaining owners may not want involved with the practice.
How to handle a sudden event like the death of an owner
Some life events are not only significant but they can occur with little to no warning. The sudden death, illness, or incapacity of an owner may leave the other members in a legal predicament if plans were not already made about what to do with that individual’s interest. There will potentially be estate law considerations built into this as well, with which your attorney can assist.
The price or valuation method
What is the departing member’s share in the business worth, or how would one ascertain its value? Determining the price to pay for the departing owner’s interest, or a means of calculating it, is essential to ensuring that everyone is satisfied with the business transition. The price or valuation method must be clearly defined in enough detail to avoid disputes.
Restrictive covenants
These are terms which limit what the departing business owner may do after leaving the veterinary practice. A buy-sell agreement will usually prevent the owner from exiting the practice and opening another one in a nearby location for a period of time. The covenants can also limit the departing owner’s ability to solicit customers, restrict them from using confidential customer information, and even safeguard proprietary business practices or methods.
Let Our Team Guide Your Veterinary Practice
Our goal at Mahan Law is to help veterinarians and veterinary business owners properly manage the legal affairs of their practices so they can keep doing what they love. Find out how we can serve your organization with a buy-sell agreement. Connect with our office today to get started.