Selling a practice can be a complex process with numerous legal and financial implications. Therefore, it is critical to have a comprehensive and legally binding agreement that outlines the terms and conditions of the sale. Let’s focus on a common type of sale agreement, known as a Practice Sale Agreement (PSA). The PSA is a legally binding document that governs the terms and conditions of the sale of a practice (being its goodwill and assets).
A Practice Sale Agreement should include the following key clauses:
1. Purchase Price and Payment Terms: The purchase price is one of the most critical elements of a PSA. It is essential to include the purchase price, payment terms, and any deposit or escrow arrangements. The PSA should also detail the payment schedule, including the timing and method of payment.
2. Transfer of Practice Assets: The PSA should specify which assets are being sold as part of the transaction. This clause (or via separate schedule) should include a detailed list of the assets, including equipment, stock, intellectual property, and patient/client lists.
3. Liabilities and Indemnities: The PSA should clearly state which liabilities, such as outstanding debts or employee entitlements, are being transferred to the purchaser. It should also include indemnities to protect both parties from any future claims or lawsuits.
4. Restrictive Covenants: A restrictive covenant is a PSA clause that restricts the vendor from competing with the purchaser's practice or soliciting it’s patients/clients for a specific period after the sale. The PSA should outline any restrictive covenants to protect the purchaser's investment and the goodwill of the practice.
5. Confidentiality and Non-Disclosure: The PSA should include a confidentiality and non-disclosure clause to protect the sensitive information and trade secrets of the practice. This clause should specify that the purchaser cannot disclose any confidential information to a third party without the vendor's prior written consent.
6. Warranties: The vendor should provide warranties about the practice to the purchaser. These warranties should cover areas such as the accuracy of financial statements, the condition of assets being sold, and compliance with legal requirements. These warranties help to protect the purchaser from any misrepresentations made by the vendor. Depending on the vendor entity, personal vendor warranties need to be considered.
7. Completion Date and Conditions: The PSA should specify the completion date and conditions that must be met before the sale can proceed. These conditions may include obtaining finance, transfer of licenses, or approval from landlords.
A Practice Sale Agreement is a critical document that outlines the terms and conditions of the sale of a practice. It should include clauses that cover the purchase price, transfer of assets, liabilities, restrictive covenants, confidentiality, warranties, and completion date and conditions – these are all commercially reasonable clauses. A well-drafted PSA protects the interests of both the purchaser and vendor and provides a clear understanding of the transaction's terms and conditions. It is important to seek legal advice when drafting a PSA to ensure that all legal and financial implications are addressed.