FINANCE
Buy-Sell
Agreements
Keep Your Practice Healthy .
By Ted Waldron
Alex and Brad , both in their mid-forties , had just celebrated the tenth anniversary of Consulting , Inc ., their market consulting business . The next morning , before going to work , Brad suffered a heart attack while jogging and died later that day . Alex suddenly lost his long-time business associate . What ' s more , after the estate was settled , he found himself with a new co-owner -- Brad ' s wife .
The result was chaos . Brad ' s wife had little interest or experience in running the firm . She needed cash for living expenses and asked Alex to buy out her interest in the business . But because most of his assets were tied up in the business , Alex was short of cash . Unfortunately , Alex and Brad ' s wife were left with little choice but to sell the company on short notice for just a fraction of what they had hoped for .
How could this fictional disaster have been avoided ? A buy-sell agreement and proper funding could have saved their business while providing needed income for Brad ' s family after his death . Buy-sell agreements lay out how ownership will change hands and how the transfer will be paid for in case of a co-owner ' s death , disability or retirement . Typically , the agreement provides for the purchase of the departing shareholder ' s stock by the surviving shareholders or the company itself .
A buy-sell agreement and its proper funding may achieve several goals : avoid liquidation of the business ; facilitate an orderly continuation of the business ; replace lost business income for a deceased owner ' s heirs ; set a purchase price that can fix the estate tax value of the decedent ' s stock ; and provide evidence to customers and creditors of the firm ' s stability .
53 TODAY ’ S PRACTICE : CHANGING THE BUSINESS OF MEDICINE