Opening a medical practice comes with significant financial and legal risks. If you are looking to purchase an existing medical practice and set it up as your own, there are a number of legal matters that you should consider before you finalise the sale.
This article is written for someone who is buying an existing medical practice and provides an introduction the key issues which arise when purchasing a practice.
The Sale of Business Agreement
Generally the party that is selling the business will organise the preparation of the Sale of Business Agreement. A Sale of Business Agreement can be long and complex, particularly for a medical practice, and it is recommended that you have this reviewed by a commercial lawyer. If changes are required, your lawyer can negotiate with the seller’s lawyers on your behalf and arrange for amendments to be made to the Sale of Business Agreement to ensure that you, as the purchaser, are well protected. This could be a lengthy process as it is common for draft agreements to be revised several times before it is completed.
What are you Actually Buying?
One of the key things you need to examine when buying the business is what assets you are actually purchasing. This involves reading the Sale of Business Agreement closely or engaging a commercial lawyer to work out what you are getting for your money.
Normally, in the purchase of a medical practice, you would be receiving:
- goodwill, which includes patient records and lists, repeat business of business, business reputation, business name and any existing business relationships; and
- plant and equipment, which may include furniture, medical equipment, computer systems, etc.
Restraint of Trade
Restraint of trade clauses in contracts prevent the seller from setting up a rival business in a nearby location which may result in your patients disappearing to the seller’s “new” clinic. Such clauses generally include a geographical restraint and set time period in which the restraint applies.
You should note that restraint of trade clauses that are overly extensive may be held to be void by the courts. It is important that this clause is drafted in a way which is fair and reasonable, and if you are unsure as to what is fair and reasonable, you need to seek advice from a commercial lawyer.
If you are taking over the lease from the former business owner you need to clarify whether the landlord is going to allow the lease to be assigned.
One of the frequent problems new businesses find when taking over existing leases is that the tenancy term runs out just as the business starts. Have your commercial lawyer review the existing lease together with the Sale of Business Agreement to prevent these problems after you have purchased the business.
This article has provided a brief overview of the key legal issues you should consider when buying a medical practice. To ensure that you are aware of the risks in purchasing a particular medical practice, it is best to have a commercial lawyer review the Sale of Business Agreement once it is drafted. An experienced commercial lawyer will be able to point out to you what you will and will not receive, and also what your obligations are in relation to the purchase.
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