Donald A. Cowan, CPA/PFS, CFP®
Cowan, Gunteski & Co., P.A.
When Do You Need an Agreement?
When you complete your residency and start practicing medicine, you are faced with making your first
major business decision – whether to start your own practice or join an existing physician group. If you
decide to start out privately, there may be a point in time when you take on an associate who will
eventually become a partner. At this point in your career, when you start operating as a group rather than
as a sole proprietor, having a buy-sell agreement in place is critical.
Whenever there is more than one owner in a practice, there must be a written buy-sell agreement. The
agreement can be drafted between shareholders of a corporation, partners of a partnership or LLC, or even
between the owner and a key employee if necessary. Many times the provisions of a buy-sell agreement
are incorporated inside the shareholder or partnership agreements.
Simply put, a buy-sell agreement controls the group and the circumstances under which a transition of ownership
occurs. By having this agreement in place, the practice is guaranteed an orderly transition of ownership.
Voluntary vs. Involuntary
The two major instances that arise in a transition of ownership are voluntary and involuntary. The
agreement should address both of these two occurrences. Most buy-sell agreements state that the owner’s
interest can not be sold to someone outside of the group without the permission of the other members of
the group. The members have the option to purchase the shares from the selling member at the price an
outside party is willing to pay. In the state of New Jersey, ownership of a medical practice is restricted to
physicians licensed in the state.
Some of the involuntary reasons for a transfer of ownership include death, disability or loss of hospital
privileges and/or license. Reasons for a voluntary transition of ownership would include a sale of the
practice to one of the exis