The Investment Scientist

Young Physicians: Do You Understand Your Employment and Buy-Sell Agreements?

Posted on: November 19, 2012

Young doctors need legal advice

When a young physician joins a practice, he will have to sign an employment agreement.

After a few years as an associate physician, he will make partner, or become a shareholder.

At which time, he will sign a buy-sell agreement.

These two agreements to a great extent determine the wealth this physician will accumulate.

If they are not done right, this physician will likely not see any of the wealth he creates.

I am not being an alarmist. Let me tell you about a client of mine….

A doctor client of mine left his medical group practice a year ago. He owned shares of the incorporated group practice that he earned over many years of his employment there. He expected to get some value out of those shares. After fighting for a year, the medical group finally reneged and sent him a cool $10 to redeem his shares of the company. This is from a medical group that pulls in millions in revenue.

I had an attorney review his employment and buy-sell agreements. These documents are lopsided; they are essentially a green light for the senior physicians to take advantage of the junior ones. For instance, the buy-sell agreement stipulates that the corporation and the existing shareholders are under no obligation to buyout the shares of the departing physician, and in any event, the value of the shares is determined only by the corporation, and thus the $10 insult.

Is it fair for the senior physicians to do that?

Fairness is in the eye of the beholder. The senior physicians who built the practice have every reason to protect their interest. If they hire an attorney to write the employment and buy-sell agreements, the attorney is not to be blame for maximizing their clients’ interest.

Whether it is wise or not is entirely a different matter. My client decided not to fight. Not everybody chooses this pacifist route. My attorney friend who specializes in medical practices can tell me stories of nasty lawsuits.

The burden ultimate falls on the shoulder of the junior physicians to protect their interest.

What can young physicians do to protect their interest?

Here are a couple of things you as a young physician can do:

  1. Make sure you read and understand the agreement
  2. If you don’t, retain a business attorney, especially one with experience in medical practice agreements to review the documents with you.

An ounce of prevention is worth a pound of cure.

Get my white paper: The Wealth Management Approach: A Guide for Physicians during Challenging Times

 

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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