Practice Buy-Ins (a new owner buying into an existing owner’s practice) require an ordered step-by-step approach. This graduated approach will expose potential problems early in the process, allowing the partners to fine-tune (or abandon) their agreement before spending additional time and money. I do not like working on any group practice transition unless I believe the practice will be successful in the long term. This process takes more time but is essential to reveal possible problems quickly.
- Confirm the Partnership Structure. We need to discuss and confirm that partnership is the preferred structure. Sometimes, the better structure may be a single corporation, a group solo arrangement, sublease or straight associate position. Please see my article “Professional Group Practice Options” for details (opens in a new window). Usually a partnership of professional corporations is the preferred group practice approach, and the remainder of this page works with that assumption.
- Review Old Partnership Agreement. If there is an existing partnership agreement in place, that agreement needs to be reviewed for problems up front. The old partnership may have terms that are outdated or would be unacceptable to the prospective new partner. Fixes need to be addressed at this early stage, or there won’t be a new partner buy-in.
- Letter of Intent. If the prospective partners are new to each other, a Letter of Intent is a worthwhile step to pin down the “handshake” parts of the overall buy-in. I’d like to set the buy-in price, how the price is paid, timing for due diligence and closing, partnership ownership and compensation, and (if applicable) owner-as-landlord lease and eventual buy-in terms. Many lenders may require a signed Letter of Intent before opening a loan application.
- Partnership Agreement. After we agree to a partnership structure, we then need to reach agreement on the professional, operational, professional, financial, legal/ethical, and succession planning elements of the partnership agreement. For example, we will discuss how professionals are compensated: payment for work completed (salary or percentage) and profit sharing (based on ownership or other consideration). Please see my Partnership Page, and my article “Successful Business Partnerships” and video “Successful Partnership Buy-Ins” for details (each opens in a new window).
- Purchase Documents. Once we are confident about agreement on the partnership terms, we can move onto the purchase documents. These documents greatly expand on the Letter of Intent and add very detailed explanations on perhaps 100 different subjects relevant to practice purchases. Sellers and Buyers have competing goals, even when the ultimate goal is a partnership buy-in, so single representation is almost always the preferred approach. Please see my videos “What Sellers Need from their Attorney” and “What Buyers Need from their Attorney” for details (each opens in a new window).
Initial practice buy-ins require both the full practice purchase documentation, and either a (1) new partnership agreement, (2) full partnership restatement, or (3) partnership amendment. Partnership agreements and restatements are available at hourly or blended rates, and partnership amendments are available at hourly rates.
Intermediate buy-ins, after the initial buy-in but before the final buy-out of the retiring or departing partner under an existing partnership agreement with detailed succession planning terms, usually require only limited documentation available at hourly rates. Buyer or Seller, contact me for a free 30-minute consultation to start planning your practice buy-in!