By Brad MacLiver
Authorship and profile at Google
When
a pharmacy is owned by two or more people the stockholders/partners should have
a
Buy-Sell
Agreement. A buy-sell agreement is a written document that provides the
procedures and governs the future sale of the pharmacy business.
Pharmacy
buy-sell Agreements protect the interest of the parties who own the pharmacy
and directs the actions triggered by a stockholder leaving the business due to
death, disability, divorce, dissolution, or retirement. The agreement will
govern how and when the shares of the pharmacy business can be sold, or
transferred. It will also provide guidance as to how the community drug store will be
valued along with the obligations of the remaining shareholders of the
business.
Buy-sell
agreements are important because the different elements of a future sell are
predetermined and won’t need to be negotiated during a heated dispute, or
during a grieving period. It provides both the stockholder and the family a
comfort level that when the inevitable time comes for an exit strategy that the
process was thoroughly thought out in advance.
Disadvantages
of not having a buy-sell agreement between pharmacy owners is that a disability
may leave one partner working more and another not adding to the productivity.
In the event of a death, without an agreement, one partner may be left with a
nonproductive heir, or a new partner may be inserted that has personality
conflicts with the surviving partner. The wrong partner could be devastating
for the pharmacy business.
There
are various types of buy-sell agreements such as: Entity Buy-Sell Agreement,
Cross-Purchase Buy-Sell Agreement, Wait and See Buy-Sell Agreement, Disability
Buy-Sell Agreement. Buy-sell agreements are also known as a Business Will or a
Buyout Agreement.
Potential elements of a Buy-Sell Agreement:
1.
Stockholders names and the number of shares and voting rights of each.
2.
Guidance for the certified pharmacy valuation and purchase of a stockholder’s
shares.
3. Mutual covenants and considerations.
4.
Restrictions on transferring, purchasing or encumbering the company’s stock.
5.
Protocol in the event of a shareholder’s divorce or termination of a
shareholders employment.
6. Obligation
to buy/sell shares from an estate.
7.
Purchase of insurance to ensure ability to meet obligations.
8.
Purchase of stock paid in lump sum or by installments.
9.
Remedies for breach of the agreement or default of payment.
10.
Until transfer is complete the right to inspect books and records.
11.
Amendments and notices for offers or legal matters.
15.
Enforceability of the agreement, the binding effects, and arbitration
procedures for disputes.
16.
Process for dissolution, or liquidation, of the corporation.
17.
Maintaining the premises during a transition.
18.
Preserving representations and warranties.
19.
The terms of transfer.
20.
Bill of Sale.
To
ensure that the money required is available, buy-sell agreements are often
funded with a life insurance policy. Should the death of one of pharmacy owners
occur, the life insurance settlement will provide the funds for the remaining
pharmacy owner to buyout the partners shares from the estate.
Life
insurance coverage for each partner needs to be in place, because without a way
to accomplish the purchase of the pharmacy shares the buy-sell agreement will
not be functional. As the business grows and develops the amount of insurance
need to be adjusted to provide an adequate coverage. Without the insurance the
surviving stockholder may not have enough cash to satisfy the amount required
to buy out the estate - leaving the survivor with an unwanted partner.
To
have the adequate insurance coverage and to determine the specifics of the
buy-out terms, a certified pharmacy business valuation is needed. There are a
large number of companies that provide business valuations. Due to the dynamics
and current market conditions of the pharmacy industry a valuation firm should
have extensive pharmacy experience. Simple accounting formulas and multipliers
will not provide an adequate, or realistic, valuation for a pharmacy business.
Pharmacy
buy-sell agreements are extremely important documents that need to be completed
with seriousness and care. Even with a long standing partnership, it is only too
late to create a buy-sell agreement when an event has already occurred....that
would require the document.
Tips for pharmacy partners:
1.
Buy-Sell Agreements are critical documents that should not be taken lightly.
Consult a licensed professional.
2.
Documents must address the proper laws and regulations which vary from state to
state. Seek the proper guidance.
3.
Premiums for insurance that will fund the buy-sell agreement might be
deductible.
4.
Ensure that the pharmacy valuation is performed by an established pharmacy
industry expert.
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Pharmacy owners who would like to know the worth of their pharmacy before making any decisions can receive a free pharmacy valuation at www.PharmacyValuations.com.
