In today’s market, partnerships come with a number of risks and uncertainties, leading physicians to question whether they truly want to be tied to a practice for the long term. Physicians should evaluate partnership offers closely to ensure that they are not assuming excessive liabilities and obligations.
Evaluate the Offer
When physicians are offered partnership, it is typically in the form of an initial proposal, describing the terms upon which they will be admitted as a partner. The offer will usually propose that the newly admitted partner “buy in” to the partnership over time and suggest that the practice deduct a percentage of this buy-in amount from the new partner’s distributions over the next few years. Scrutinize this offer closely, paying particular attention to the following items:
What type of equity interest is being offered?
The interest should have full rights to voting and control and be of the same type and amount as that of the existing partners.
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How long does the partner have to repay the buy-in?
Ensure that the agreement spreads the payments over sufficient time, so the physician still makes enough to cover bills and expenses.
Is the buy-in amount too high?
A large buy-in amount may be unreasonable and create an undue financial burden on the new partner.
What happens if the practice is sold before the buy-in amount is repaid?
Review the documents to make sure that any unpaid buy-in amount is forgiven in a sale and perhaps even modified in something like an economic downturn.