feature When a Partnership Fails Planning a win-win exit strategy M y “constant preach” is that the days of having a successful and profitable one-person chiropractic practice are over. Accordingly, the practising chiroprac-tor is often well advised to enter into a co-ownership arrangement of some type. This could be done by collaborating with an employee, or by bringing in another chiropractor and forming a partnership with this person. The standard in professions, including chiropractic, is an open-ended, unincorporated partnership of two or more professional corporations. Although all partnerships are formed with the best of intentions and total confi-dence in each colleague from the other(s), few last indefinitely. Most dissolutions are amicable but some are hostile. Whichever the case, these breakups can create as much emotional distress as a marital divorce – and sometimes more. The causes for breakup are numerous. They may include practice disagreements, discrepancies in competencies, sour personal relationships, financial problems, spousal interference, declining health of a partner, retirement and so forth. When the practice is prosperous, seldom are there disputes. However, when the practice is failing, most times, each partner will blame the other(s) and severance soon becomes the best, or perhaps the only, option. BEGIN WITH THE END IN MIND Partnerships are always formed at a time when all participants think it will last forever, that they will always agree to agree and that everything will run smoothly. As this is a rarity, it is always wise, when setting up your initial joint practice ownership and work-ing agreement, to take into consideration what will transpire in the event of dissolution. This should encompass how the value of each partial interest will be calculated, patient retention by the originator, files and records ownership, division of capital assets and what the departing partner can take with him/her, among other issues. Every agreement should contain a written shotgun buy-sell clause that simply states that if you make an offer to buy the interest of your partner – therein stating the price, terms and conditions – he/she has so many days in which to buy your interest for the same as offered price and with the same terms and conditions. MAJORITY AND MINORITY INTERESTS Although most partnership interests are equal, sometimes this does not hold true, particularly when a party buys into an established chiropractic practice. At law, a majority interest is the holding of 51 per cent of the unincorporated practice, or, if incorporated, it is 50 per cent plus one of all issued shares. A minority interest is any-thing less than this. In the buy-sell negotiations, the commencement point will probably be the amount each part owner considers as “fair market value.” This suggests that a minority position should be discounted, whereas a majority interest is entitled to a premium. However, in practice, while a majority interest seldom garners a bonus, several factors may combine to make the value of a minority interest less than its proportionate share of all interests in the practice. For a majority interest, unless acquired by an insider – this being one who is already a partner, or perhaps an employee – the entire practice usually goes on the selling block. Except on a rare occasion, created by a special circumstance, only another insider ever purchases a minority interest, and then, never on the open market. Therefore, in the valuation of a minority interest, a notional market must be inferred. This presupposes an open market value when in fact no such market actually exists. In these situations, there is no compulsion to sell, or to buy, and subject to certain provi-sions detailed in the partnership agreement or articles of association, any restrictions on the sale of a fractional interest are not considered. Valuation is always made on a going-concern basis, which assumes continuance of the practice. www.canadianchiropractor.ca Lloyd Manning is a semi-retired business, commercial real estate appraiser and financial analyst. His newest book – Winning With Commercial Real Estate – The Ins and Outs of Making Money In Commercial Properties is available online from Indigo-Chapters. He can be reached at [email protected]. Lloyd Manning 36 • CANADIAN CHIROPRACTOR | OCTOBER 2012
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