Skip to main content
MJH Life Sciences
  • Login
  • Register
  • Login
  • Register
Home
  • Topics
  • Health IT
  • Careers
  • Law/Malpractice
  • Compensation
  • Pearls
  • Staffing
  • Contribute to Site
MJH Life Sciences

SUBSCRIBE: eNewsletter

Thinking of buying or selling a medical practice? Read this first.

  • Nick Hernandez
January 4, 2019
  • Mergers/acquisitions, Contracts, Finance, Law & Malpractice, Practice Expansion, Practice Management

Medical practice acquisitions represent a challenging and risky strategic decision.

There are three main legal structures for acquiring a medical practice: asset purchase, stock purchase, or merger. All three of these structures are different types of acquisitions. A merger is a type of acquisition that has a particular legal meaning.

The decision to buy, sell, or merge a medical practice is more complicated than ever, and physician owners must have a clear understanding of the legal structure of the potential transaction.

Here are some of the advantages, disadvantages, and considerations for these legal structures.

Asset purchase

In an asset purchase, the buyer purchases specific assets of the target practice that are listed within the transaction documents. Buyers may prefer an asset purchase because they can avoid buying unneeded or unwanted assets and liabilities. Generally, no liabilities are assumed unless specifically transferred under the transaction documents. Because the liabilities remain within the selling practice, buyers can eliminate or reduce the risk of assuming unknown liabilities.

Further, buyers typically receive better tax treatment when purchasing assets as opposed to stock. Buyers may also be able to reduce their taxable gain or increase their loss when they later sell or dispose of the assets.

The main risk to buyers in an asset purchase transaction is that a buyer may fail to purchase all of the assets it needs to effectively run the practice. There are also various aspects of an asset sale that can be time-consuming and drive up transaction costs, such as listing specific assets and determining their value.

For some assets, third-party consent may be required before the assets can be transferred to the buyer. The manner in which title of an asset is passed to the buyer will vary depending on each kind of asset. Finally, there is always the risk that the seller could retain sufficient assets to continue as a competing going concern. This risk is usually mitigated by requiring that the seller enters into a covenant not to compete with the buyer.

Sellers generally disfavor asset transactions because the seller is left with potential liabilities without significant assets it could otherwise use to satisfy those liabilities. Also, the tax treatment of an asset sale is generally less favorable to sellers than a stock sale. The practice and its shareholders can each potentially incur taxable income, which could result in double-taxation of the sale proceeds. Entities that have pass-through taxation such as partnerships, LLCs and S corporations can avoid the problem of double taxation and thus may be more likely to accept an asset purchase structure.

Stock purchase

In a stock purchase, the buyer purchases the stock of the target practice directly from the target's shareholders. The practice remains an existing going concern after the purchase, and its business, assets, and liabilities are all unaffected by the transaction. A stock purchase may be preferred if the buyer wishes to continue operating the target practice after the purchase. Further, absent unusual circumstances, consent from third parties is not needed to approve the transaction.

However, the buyer may be exposed to unknown risks by buying the entire practice, assets, and liabilities. Buyers can reduce their risk by holding back some of the purchase price in escrow to satisfy any liabilities that arise after closing.

Pages

  • 1
  • 2
  • next ›
  • last »

Related Articles

Resource Topics rightRail

  • Resource Topics
  • Partner Content
  • Medical Billing & Collections
  • Coding
  • Patient Relations
  • EHR
  • Law & Malpractice
Why Patient-Centered RCM: 6 RCM Trends Affecting Medical Offices & Patients [eBook]
Across Generations: Millennials & Baby Boomers Advance Healthcare Communications
A buyer’s guide to alternative payment models
How adopting a virtual business office delivers new efficiencies to one medical group
Unpredictable pairings: A new approach to community health
Connect with Us
  • Column 1
    • Home
    • About Us
    • Contact Us
  • Column 2
    • Editorial Info
    • Editorial Board
  • Column 3
    • Advertising Info
    • Reprints
    • Advertising Terms
  • Column 4
    • Terms of Use
    • Privacy Policy
Modern Medicine Network
© UBM 2019, All rights reserved.
Reproduction in whole or in part is prohibited.

We've noticed that you're using an ad blocker

Our content is brought to you free of charge because of the support of our advertisers. To continue enjoying our content, please turn off your ad blocker.

It's off now Dismiss How do I disable my ad blocker?
❌

How to disable your ad blocker for our site:

Adblock / Adblock Plus
  • Click on the AdBlock / AdBlock Plus icon on the top right of your browser.
  • Click “Don’t run on pages on this domain.” OR “Enabled on this site.”
  • Close this help box and click "It's off now".
Firefox Tracking Prevention
  • If you are Private Browsing in Firefox, "Tracking Protection" may casue the adblock notice to show. It can be temporarily disabled by clicking the "shield" icon in the address bar.
  • Close this help box and click "It's off now".
Ghostery
  • Click the Ghostery icon on your browser.
  • In Ghostery versions < 6.0 click “Whitelist site.” in version 6.0 click “Trust site.”
  • Close this help box and click "It's off now".
uBlock / uBlock Origin
  • Click the uBlock / uBlock Origin icon on your browser.
  • Click the “power” button in the menu that appears to whitelist the current website
  • Close this help box and click "It's off now".