Utah Buy-Sell Agreements for Pharmacy Owners

By Brad MacLiver
Authorship and profile at Google


When a UT pharmacy is owned by two or more people the stockholders/partners should have a Buy-Sell Agreement. A buy-sell agreement is a written document that provides the procedures and governs the future sale of the Utah pharmacy business.

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

Buy-sell agreements are important because the different elements of a future sell are predetermined and won’t need to be negotiated during a heated dispute, or during a grieving period. It provides both the stockholder and the family a comfort level that when the inevitable time comes for an exit strategy that the process was thoroughly thought out in advance.

Disadvantages of not having a buy-sell agreement between Utah pharmacy owners is that a disability may leave one partner working more and another not adding to the productivity. In the event of a death, without an agreement, one partner may be left with a nonproductive heir, or a new partner may be inserted that has personality conflicts with the surviving partner. The wrong partner could be devastating for the pharmacy business.

There are various types of buy-sell agreements such as: Entity Buy-Sell Agreement, Cross-Purchase Buy-Sell Agreement, Wait and See Buy-Sell Agreement, Disability Buy-Sell Agreement. Buy-sell agreements are also known as a Business Will or a Buyout Agreement.

Potential elements of a Utah Buy-Sell Agreement:

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

2. Guidance for the certified Utah 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.

To ensure that the money required will be available, buy-sell agreements are typically funded with life insurance policies should the death of one of pharmacy owners occur.  In this case, the life insurance settlement provides funds for the remaining Utah pharmacy owner to buyout their partner's shares from the estate.

For each partner, life insurance coverage must be in place because with no way of purchasing the UT pharmacy shares, the buy-sell agreement is non-functional. As the business develops and grows, the amount of insurance needs to be adjusted in order to provide adequate coverage. Without insurance, the surviving stockholder could possibly not have enough cash to satisfy the required amount to buy out the estate, which will leave the survivor with an unwanted partner.

To have adequate insurance coverage and determine the specifics of the buy-out terms, it is necessary to consult a certified pharmacy business for a valuation. There are quite a few companies that provide business valuations and, because of the dynamics and current market conditions of the pharmacy industry, a valuation firm in Utah should have extensive Utah pharmacy experience. Simple accounting formulas and multipliers do not provide adequate or realistic valuations for a pharmacy business.

Pharmacy buy-sell agreements in Utah are extremely important documents that will need to be completed with both seriousness and care. Even if one has a long-standing partnership, it is already too late to create a buy-sell agreement when an event has already occurred that requires 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 pharmacy valuation is performed by an established Utah pharmacy industry expert.