Article Date: 9/1/2006

fix this practice
Associate Agreements

Without a contract, your associates can easily become your competition.

RICHARD S. KATTOUF, O.D., D.O.S.

Q: I'm the owner of three independent practices with four associates who were each assured they would have the opportunity to purchase ownership in the practice. Three have been with me more than six years, but I have no associate agreements. How do I proceed?

   Dr. D. Vens Via e-mail

A: If you've read my column in the past, you know that you have committed a major management sin by not having an associate agreement. These doctors can open a practice next door to yours with no legal repercussions. They have a patient following and could easily become a significant competitor. Part of "preventive management" is protecting your interests.

In order to go forward with a potential sale, it would be wise to form a Limited Liability Corporation (L.L.C.). This type of corporation will best protect the assets of the practice and lower your tax liability. If you own any of the buildings (suites), you can form a separate L.L.C. for the real estate. In order to save more on taxes, you might also form a third corporation that owns the equipment.

Have the practice appraised. You're professionally married to these doctors; do not attempt to negotiate without a mediator to act as a non-emotional conduit between buyers and seller. If you attempt this without professional help, the emotions and stress may take a toll.

Set limits

Set a value for each share of stock and define the amount that each associate may purchase. Do you want to maintain control? If so, make only 49% available to the buyers. But there are some points to consider, including:

•   Should the associate be offered a higher percentage of ownership if her service (number of years) is greater than that of another?

•   Should there be an adjustment of practice value based on the associates' contribution to the practice?

•   Should you offer the senior associates a "reduction" in their buy-in rate or possibly a small amount of stock for services rendered?

•   Should buyers be given first right of refusal to purchase any property (office)?

Another scenario is to sell one-fifth of the shares to each associate. However, most associates don't take on management, administrative or staff oversight duties. The seller must relinquish certain management tasks in this scenario. But many sellers have a hard time delegating duties they have performed for ten or twenty years.

The other side

Allow me to also list frequent comments I've heard from many associates in this situation.

•   "What's in it for me?"

•   "If the owner releases me, does the restrictive covenant apply?"

•   "Will I be compensated better if I take on management duties?"

•   "I deserve partial ownership for my service to the practice."

•   "Will I be paid for my time outside the office attempting to build the practice?"

•   "I refuse to pay for the portion of the practice that I built."

•   "I do not want to be a partner unless I own as much as the senior partner (equal partnership)."

The misunderstandings, emotions and invalid perceptions that abound in these statements require a mediator's help.

Develop a proper exit strategy and you can reap great financial rewards. Procrastinate and you risk organizational and economic disaster.

DR. KATTOUF IS PRESIDENT AND FOUNDER OF TWO MANAGEMENT AND CONSULTING COMPANIES. FOR INFORMATION, CALL (800) 745-EYES OR E-MAIL HIM AT  ADVANCEDEYECARE@HOTMAIL.COM. THE INFORMATION IN THIS COLUMN IS BASED ON ACTUAL CONSULTING FILES.



Optometric Management, Issue: September 2006