Today's Practice: Changing the Business of Medicine TP2018Q2DigitalEditionWeb | Page 56

F I NA NCE
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.
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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 retire-
ment. 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.
TODAY ’ S P R A C T I C E: C H A N G I N G T H E B U S I NES S OF M EDI C I NE