Buy-Sell Agreements for Pharmacy Owners in Oklahoma

By Brad MacLiver
Authorship and profile at Google


When two or more people own an OK pharmacy the stockholders/partners should have a Buy-Sell Agreement.  This is a written document that provides the procedures for and governs the future sale of the pharmacy business.

             
Pharmacy buy-sell Agreements in Oklahoma protect interests of the parties who own the pharmacy and direct actions triggered by a stockholder leaving the business due to retirement, disability, divorce, dissolution, or death. The agreement governs how and when the pharmacy business' shares can be sold or transferred, and it will also provide guidance as to how the pharmacy will be valued along with the obligations of the pharmacy's remaining shareholders.

It is important to set up buy-sell agreements because the different elements of a future sell are predetermined and won’t require negotiation during a heated dispute during a grieving period. They provide both the stockholder and the family a level of comfort that, when the inevitable time comes for an exit strategy, the process was thoroughly thought through in advance.

The disadvantages of not setting up a buy-sell agreement between pharmacy owners is that a disability could leave one partner working more while another isn't adding to the productivity. Without an agreement, one partner may be left with a nonproductive heir in the case of a death, or a new partner that has personality conflicts with the surviving partner may take their place. Having the wrong partner could be a devastating situation for the Oklahoma pharmacy business.

Various types of buy-sell agreements exist, such as: Entity Buy-Sell Agreements, Cross-Purchase Buy-Sell Agreements, Wait and See Buy-Sell Agreements, and Disability Buy-Sell Agreements.  Buy-sell agreements are also referred to as a Business Will or a Buyout Agreement.

Twenty Potential elements of a Buy-Sell Agreement:

1. Stockholder names and the voting rights and number of shares of each. 

2. Guidance for the certified pharmacy valuation and purchase of a stockholder’s shares.

3. Mutual covenants and considerations.

4. Restrictions on transferring, purchasing or encumbering the company’s stock.

5. Protocol in the event of a shareholder’s divorce or termination of a shareholders employment.

6. Obligation to buy/sell shares from an estate.

7. Purchase of insurance to ensure ability to meet obligations.

8. Purchase of stock paid in lump sum or by installments.

9. Remedies for breach of the agreement or default of payment.

10. Until transfer is complete the right to inspect books and records.

11. Amendments and notices for offers or legal matters.

15. Enforceability of the agreement, the binding effects, and arbitration procedures for disputes.

16. Process for dissolution, or liquidation, of the corporation.

17. Maintaining the premises during a transition.

18. Preserving representations and warranties.

19. The terms of transfer.

20. Bill of Sale.

In order to ensure that the money required is available, buy-sell agreements are often funded with a life insurance policy. Should the death of one of pharmacy owners occur, the life insurance settlement will provide the funds for the remaining pharmacy owner in Oklahoma to buyout the partners shares from the estate.

Life insurance coverage for each partner needs to be in place, because without a way to accomplish the purchase of the pharmacy shares the buy-sell agreement will not be functional. As the business grows and develops the amount of insurance need to be adjusted to provide an adequate coverage. Without the insurance the surviving stockholder may not have enough cash to satisfy the amount required to buy out the estate - leaving the survivor with an unwanted partner.

To have the adequate insurance coverage and to determine the specifics of the buy-out terms, a certified pharmacy business valuation is needed in Oklahoma. There are a large number of companies that provide business valuations. Due to the dynamics and current market conditions of the pharmacy industry a valuation firm should have extensive pharmacy experience. Simple accounting formulas and multipliers will not provide an adequate, or realistic, valuation for an OK pharmacy business.

Pharmacy buy-sell agreements are extremely important documents that need to be completed with seriousness and care. Even with a long standing partnership, it is only too late to create a buy-sell agreement when an event has already occurred....that would require the document.

Tips:

1. Buy-Sell Agreements are critical documents that should not be taken lightly. Consult a licensed professional.

2. Documents must address the proper laws and regulations which vary from state to state. Seek the proper guidance.

3. Premiums for insurance that will fund the buy-sell agreement might be deductible.

4. Ensure that the Oklahoma pharmacy valuation is performed by an established pharmacy industry expert.