Buying out a senior partner

January 25, 2011

The buyout of a senior partner does not have to be detrimental to your practice.

Q: We are faced with a buy-out of a senior partner. This issue has the potential to split our group up. What can we do?

A: The answer here depends upon the terms of the payout and the ability of the group to address its own structure and financial position. Many groups have existing senior partner "promissory notes" that they fail to recognize as a financial responsibility until there is a retirement event. Often, these have been constructed decades ago and simply passed down as an unrealized liability. In some cases, these obligations can actually bankrupt a practice. The doctors need to seek competent corporate counsel to review the partnership or stock agreements and to sit down in a problem-solving session with everyone to address the facts as they exist. If there is a structured payout, sometimes it can be lengthened to allow it to be realized in a time frame that is more reasonable for the remaining doctors. If the payout will cause a potential dissolution of the group, the senior partner might have to understand that the economics for the practice have changed and there must be some kind of accommodation for the group to be able to partially discharge their obligation. Each party has to understand that the financial position of the practice must sustain working doctors at some level that is competitive in the marketplace if it is to be able to discharge its obligations to retiring doctors. If it cannot, then the practice cannot recruit or retain practitioners. The worst option is for any of the parties to litigate.