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Lawyer for Veterinarians, Veterinary
Corporations and Veterinary Practices
Article #7 – Bringing a new partner into a veterinary practice
This is Article #7 in my 9-part series on the basic
corporate, business and contract law issues for veterinary
corporations and veterinary practices in California. The
articles in this series are:
This article gives an outline of how to
bring a new veterinarian into a veterinary practice. I go
from common sense to legal advice, from the veterinarian’s
purchase of ownership to the parties’ exit strategy and
unwinding of the relationship.
Culture Fit.
Before anything else, think hard
whether the new veterinarian will fit in with the practice’s
culture. The primary risk is that the existing group and
the new veterinarian might not fit together. For example,
the group and the veterinarian might differ on the required
coverage hours or the handling of employees.
Compensation.
A veterinary group’s compensation structure is the most
important part of its culture. The hardest thing to get
right and keep right is a group’s compensation structure.
Every group has its own compensation structure ranging from
“eat what you kill” to equal shares. I give a common
formula for fixing compensation in Article 4,
Veterinarian
employment agreements and independent contractor agreements.
Buying into the
Practice.
After salary, think ownership. Frequently the
practice asks the veterinarian to wait a period of time
(e.g. one year) before the parties discuss the buy-in. This
ensures that the new veterinarian fits-in before buying-in.
Veterinarian employment agreements sometimes have clauses
for the veterinarian’s purchase of ownership in the
practice. Usually the clauses are vague and non-binding,
and only express the parties’ expectations on the subject.
If the veterinarian’s buy-in is a material part of the deal,
however, specify these deal terms:
- The ownership percentage that the veterinarian
will get
- The purchase price
- The period over which the veterinarian will pay the
purchase price
- The extent of the vet's participation in
control decisions for the practice, e.g. is the
vet on the board of directors?
Corporate Structure.
The new veterinarian must buy into something, and
usually that something is a veterinary corporation. The
veterinary corporation’s structure should protect both the
incoming veterinarian and the existing group. You need to
shield each veterinarian from two kinds of liabilities: (1)
liabilities arising from the acts of the other veterinarians
in the group, and (2) general liabilities of the veterinary
corporation (such as real property and equipment leases,
etc.). At the same time, the corporate structure must
comply, to the letter, with the laws and regulations that
govern veterinarians.
Group Liabilities.
If the existing veterinarians are liable for group
debts, be clear about the liabilities for which the new
veterinarian will become responsible. Will the new
veterinarian guarantee existing loans or leases? Will the
new veterinarian step into a capital call?
Exit Strategy.
Now that you’ve structured the entry of
the new veterinarian, structure the exit. The existing
veterinarians and the incoming veterinarian all need an exit
strategy. The most common exit is the termination of the
veterinarian’s employment plus the buy-back of his or her
equity. The practice also might give severance pay to the
departing veterinarian.
This is where a buy/sell agreement comes
in. A buy/sell agreement is essentially an agreement for
exiting a practice. A buy/sell agreement works like this –
the agreement names certain trigger events for buy-back
(e.g. termination of employment, death) then it either
requires or permits the buy-back of the veterinarian’s
equity on the occurrence of that specific event. Then the
agreement sets a price for the buy-back. For more on
buy-sell agreements for a veterinarian practice, see Article
5,
Shareholder
buy-sell agreements for veterinary corporations.
This article only gives a short roadmap
about bringing a new veterinarian into a veterinary
practice. There is a lot more to this subject than
introduced here. Before you do anything, get competent
legal counsel to help you.
Call me to schedule a
legal consultation: 510-796-9144 | 