60 LEGAL EASE / Legal Agreements with Co-Owners
operating agreements: These must include well-conceived and articulated buy–sell agreements. There are several areas of concern here.
Be prepared Operating agreements can get compli-
The challenge for a new
partnership is the day-to- day issues.
cated. Monheiser List offered three exam- ples of situations she has seen arise and questions that are involved: An owner voluntarily withdraws from the practice at the outset. She says it is much easier to handle this scenario at the beginning, before anyone decides to leave, than when an owner has already lined up the moving van to relocate across the country. In that scenario, how will the buyout price be determined, where will the money come from to pay the departing owner and what should the terms (e.g., interest rate, length of the loan) of the buyout be? Should the owners who are staying in the practice personally guarantee the loan, or is it merely secured by pledging the practice’s assets?
One owner cuts back to part-time. Logically, his or her compensation should decrease, says Monheiser List. Should his or her share of the profits also be less when he or she is not working full-time as the other owners are?
An owner becomes disabled. What happens if the disability lasts a month, lasts 6 months or is permanent? Should the other owners be able to buy out this party’s interest? When? At what price and terms?
The concerns can seem overwhelming, but they are not difficult to handle if they have been discussed and addressed in the co-ownership documents, experts suggest. Monheiser List told of two situations that were successful because of proper preparation:
Two veterinarians who knew and respected each other decided to bring in an attorney and an accountant at the outset to help them decide on the structure of their proposed practice. As the discussions progressed, it became increasingly clear that they had different philosophies about practice management, staffing, finances and how to split the profits. In the end, they chose not to go into practice together. Today, they are still friends and colleagues, but one has paired with a different veterinarian and the other remains a sole owner.
One co-owner of a practice died unexpectedly. After the initial shock, the others reviewed their signed agreement and found that it outlined exactly what should happen in this circumstance. It stated the criteria for selecting a practice appraiser, set forth the terms that would be used to pay the portion not covered by life insurance proceeds and established the deadlines for each step. Although the owners had forgotten exactly what the agreement said, they were able to use it to pay the deceased owner’s spouse a fair price and continue the practice’s operations with a minimal amount of disruption.
Consider these areas of concern Although every possible situation may not be able to be documented, there are some areas of concern to consider. Monheiser List, for example, offered these:
What limitations are there as to whom an owner can sell or otherwise transfer his or her interest? Will it be to the practice itself, the other owner(s), or only someone who is acceptable to the owners and then only at a price they find reasonable?
Trends magazine, November 2012
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