When a drug store that is planning on being owned by two, or more, partners/shareholders a Buy-Sell agreement should be created. There are various types of Buy-Sell agreements, and they’re often considered a form of a business will, or buyout agreement.
A pharmacy’s Buy-Sell agreement will be a written document compiled with the elements that create the procedures and policies for the future transfer drug store’s stock. These agreements are created to protect the interests of the pharmacy’s co-owners. The agreement will direct the actions triggered by a partner/co-owner leaving the pharmacy because of retirement, disability, divorce, dissolution, or death.
A Buy-Sell Agreement will regulate how the shares are valued, remedies for disputes, and the actions to sell any shares in the drug store. When the shares are to be transferred between any remaining owners and the estate of a previous shareholder the agreement should provide the method of ensuring the funds to complete the stock transfer is available.
Pharmacy Buy-Sell Agreements are often funded with life insurance. If the death of one pharmacy owner happens, the life insurance settlement provides the funds that allows the remaining shareholders to buy the shares from the deceased co-owner’s estate.
Unless cash has been set aside, life insurance for each partner must be in place, because without a way to purchase the partner’s shares the contract is non-functional. As the drug store grows over the years, the value of the business will increase, therefore the amount of insurance should also be expanded. Without adequate insurance coverage the surviving pharmacy owners may not have enough funds to buy the shares from the estate, which could leave the pharmacy’s remaining owner with an unwanted partner.
To have adequate insurance coverage and to set the details of a stock purchase a certified pharmacy business valuation should be completed. There are numerous companies that offer business valuations. However, with the changes the pharmacy industry has experienced the past few years hiring a valuation company with expertise in the pharmacy industry will provide better detail and advantages to the pharmacy owners.
A pharmacy’s Buy-Sell Agreement will be an extremely important document that should be created with much care and thought. Even when there is a long-standing pharmacy co-ownership a written agreement should be in place. Everyone needs an exit strategy and it may be by retirement or by a bus. After an event has occurred it is to late.
Buy-Sell Agreements for drug stores are important because the different elements of future actions are addressed meaning there shouldn’t be a need for heated dispute, or confusion during a grieving period. The agreement gives both the pharmacy’s shareholders and their family members a comfort level that when the inevitable exit time occurs the process of transferring the stock was carefully planned out in advance.
Pharmacy partners without a Buy-Sell Agreement are at a disadvantage when an event does finally occur. A disability can leave one of the pharmacy’s partners working more hours, while the second is unfortunately less productive. In the event of a death, without the pharmacy business agreement, a partner may be left with a heir that doesn’t know the business, has other another agenda, or has personality conflicts with the surviving pharmacy partner. The wrong partner could be devastating for the pharmacy business.
Tips for Pharmacy Buy-Sell Agreements:
1. Premiums for the insurance that finances the contract upon a co-owners death may be tax deductible. With changing tax laws consult your CPA.
2. Ensure that the pharmacy’s business valuation is calculated by a pharmacy valuation firm who has expertise in the pharmacy industry.
3. When developing the pharmacy’s buy-sell agreement, consult legal and accounting professionals. This contract for the pharmacy business is vitally important and should not be taken lightly.
4. Laws and regulations vary from state to state, so the appropriate due diligence needs to be taken when creating the pharmacy’s Buy-Sell Agreement.