Is it possible to sell just one-third of your practice to an associate?
Q: My associate wants to buy half my practice so that she is an equal partner, but I want to bring in a third owner later, so I only want to sell her a third. Any suggestions?
A: The reasons for ownership can be both financial and emotional. Sell her 50% now so that she feels good about it emotionally, with a contract that both of you will equally sell shares to the third owner or dilute shares to create more shares at that time. This arrangement may also net you more money. A minority interest in a business does not have control-as does a majority interest-resulting in a question of a discount to the value for a lack of control. A discount for minority lack of control (DLOC) is applied for the lessened ability of a shareholder with 50% or less ownership of the company.
When a shareholder has a 50% interest, he or she can block the action of the other shareholder(s) but also cannot force an action with the voting rights of his or her shares. When a shareholder has less than a 50% interest, the other majority shareholder(s) owning more than 50% can force their will on the minority shareholder. Decisions subject to control include compensation for individual physicians, electing directors and officers, appointing management, acquisition or sale of assets, and allocation of profits and dividends. Other factors having an impact are commonly described as "senior doctor rights."
Answers to readers' questions were provided by Mark Scroggins, CPA, Clayton L. Scroggins Associates Inc., Cincinnati, Ohio; and Keith Borglum, CHBC, Professional Management and Marketing, Santa Rosa, California. Send your practice management questions to email@example.com