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An Effective Strategy to Buy a Retiring Partner's Interest,

by Thomas L. Snyder, DMD, MBA, Director Henry Schein Professional Practice Transitions

Many partnership agreements fail to adequately address the retirement buyout of the senior partner.This flaw in any partnership agreement can be a major issue. Whether it is due to high expectations for a sale price for a retiring partner or a disinterested junior partner who does not want to incur additional financial obligations, this final chapter in a transition plan can become a financial disaster for the outgoing partner. This issue must be completely addressed at the beginning of any partnership negotiations.

One consideration that should be contemplated is a forced buyout of the retiring partner. In the event that the junior partner refuses to buyout the senior partner's interest, a liquidated damages clause should be considered. This is a financial penalty to offset the financial hardship that a senior partner may endure if he/she is unable to sell their remaining partnership interest. If the senior partner is forced to go to the marketplace and recruit a third party to buyout his or her partnership interest, the sale price may be substantially reduced.

In other instances, senior partners who have reduced their clinical hours as well as their clinical production sometimes unrealistically demand a full fair market value for their partnership interest.This, in our opinion, is also an...

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