Buying/Selling a Pharmacy—Why a Contract?
In today’s litigious world, it remains amazing—if not incredible—that many people continue to seek to handle matters of an important nature without the aid of an attorney. 70% of people who should have a Will do not. Skipping the closing paperwork on “For Sale By Owner” homes only decreased substantially after banks demanded the paperwork be done or the home loan would be refused.
The sale of a pharmacy from one pharmacist to another continues to be an issue. The scenario is generally this: the older pharmacist, the owner, brings in a younger pharmacist interested in buying. An agreement (often quite fair) is verbally agreed upon that passes ownership over a series of years. Less often seen is this: “OK, give me a million dollars and on Friday, the store is yours.”
No contract. No written agreement. A firm handshake and words (which, by the way, will NOT hold up in court in most states).
“For want of a horse, the kingdom was lost” can be restated as “For want of spending a few thousand, the million dollar investment was lost.” And this happens regularly. A dispute will arise, and both parties will see things in their own way. Patient injured before the sale but Seller says it is now Buyer’s problem. Taxes levied during the year of the sale and the parties argue over who pays what percentage.
Let’s look at some of the protections a written executed agreement or contract would provide to both Buyer and Seller.
Taxes. A written agreement will spell out the date when tax responsibilities and liabilities pass from Seller to Buyer. Taxes are complicated and the sale of a business can make taxes incredibly complicated. A provision in a contract will specifically state tax dates, fiscal year, payments as well as to whom responsibility for these will belong Tax issues that cannot be separated but extend from before the sale to after, should be addressed as to the percentage of taxes owed or liability based on the amount of time the tax issue extends on either side of the sale date. Further, this provision should state that tax issues arising AFTER the sale that encompass a time period BEFORE the sale will still be the liability of the Seller. Paying an accountant to resolve these issues will cost enough; having to bring in lawyers to fight over whose responsibility the taxes can be avoided by the contract.
Ownership. “OK, give me a million dollars and on Friday, the store is yours.” “Upon receipt of payment, the pharmacy belongs to Joe Smith, RPh.” Invariably, upon that Friday, or after Joe has made 80% of the purchase price, the $750K counting machine is going to break, a big fixture is going to collapse, a customer is going to fall and get injured in the store. Buyer and Seller will argue that that part of Friday, ownership had or had not passed to Buyer. Joe is going to say he had not completed the purchase, while the Seller will say that Joe had substantially done so. A written agreement will state with specificity the date and time that ownership, with its concomitant responsibilities, duties and liabilities, passed from Buyer to Seller.
Who gets the coffeepot? What about the TV in the breakroom? It seems like the Seller is always going to have some personal property that he/she forgot. A written agreement can either list what the Seller may take upon leaving the pharmacy, state that all property in the pharmacy building belongs to Buyer upon a certain date, or it can name a date by which all personal property must be removed.
Debts. The date upon which Buyer assumes the pharmacy’s debts should be specified as to type, amount, and date assumed. A common practice, usually for tax purposes, is for people to incur debts through their corporate status. Debts should be listed in detail, as well as who is the responsible party and for how long. For example, if Seller bought a personal automobile through the corporation owning the pharmacy, Buyer would want that debt listed as Seller’s continuing responsibility mentioned in the contract.
Contracts. Every pharmacy has contracts, contracts with wholesalers, contracts with third party insurances, contracts with cleaning people, waste disposal, shredding service, etc. The written agreement to sell the pharmacy should indicate the Seller and Buyer’s responsibilities to inform the other parties in the contracts of the sale and change in ownership. Without this, many of these services have the right and will sever the contract, leaving valuable and needed services for the pharmacy unmet. The agreement should also name the contract and who—Buyer or Seller—is responsible for re-negotiating (usually the Seller will notify and the Buyer will re-negotiate).
Liabilities. Liabilities do not end with the sale of a pharmacy. The contract should state that Seller retains responsibility for any liabilities that began (whether in full or in part), took place, or were later discovered to have occurred before the sale date. Just because a claimant discovered injury months after the sale, the Buyer does not automatically assume the liability, especially if the Buyer had nothing to do with the incident. However, Seller’s malpractice insurance should cover these incidents without the Seller having to continue such coverage after full retirement. Seller should inform the malpractice carrier that he/she is no longer owner of the pharmacy.
Other employment. Seller may choose to continue working as a pharmacist. If at another location, an agreement is necessary to show Seller where and when he/she may seek employment. A written agreement should include a Non-Compete Clause, a statement that Seller will not seek employment in any environment that would directly or indirectly harm the business just sold to Buyer. This should state a specific geographic area and period of time where Seller may not work as a pharmacist, as doing so in that area and time would likely cause harm to Buyer.
Non-disclosure. This simply states that Seller will not discuss with others information about pricing, purchasing, billing, or other proprietary information that Buyer is still employing in the business of the pharmacy. Seller has a duty to maintain the trade and business secrets of the business just sold, unless a contract specifically states otherwise. For example, a pharmacist develops a new marketing strategy and uses it as her store. When she sells to Buyer, she has the contract state that she has the right to market and sell the strategy to other pharmacies. Buyer may want a price adjustment and Buyer will have to acknowledge in the contract that the strategy is not being purchased.
Dispute resolution. When a dispute arises between Buyer and Seller, a dispute resolution clause will tell them how to seek legal redress. The clause will state whether mediation or arbitration is required prior to filing a lawsuit, which state law will apply, and who has to pay for what (lawyers’ fees, court costs, etc) when the lawsuit is settled or adjudicated.
Buying and selling a pharmacy is a major step. A myriad of issues must be addressed and addressed correctly. To avoid as many pitfalls as possible, and to minimize those that do show up, a written contract between the parties can significantly reduce the friction and resolve the issues.