At Meridian Lawyers we are frequently asked to advise on succession planning for pharmacists, especially those in partnership (whether in the traditional sense or shareholders via a corporate pharmacy structure). Many partnerships continue over lengthy periods with little emphasis on exit arrangements in their formal partnership or shareholders agreement.
In our experience, carefully considered exit arrangements in a partnership agreement (or shareholders agreement as the case may be) is essential in any partnership. This creates certainty for the partners and allows them to plan for the future. Some questions to ask when thinking about exit arrangements include:
- Is there a clear exit mechanism for a partner to leave the partnership e.g. by retirement?
- How much notice must a partner give to the other partners in the case of a retirement?
- Should the other partners have a right to purchase a retiring partner’s interest or should the retiring partner have a right to insist that the remaining partners purchase his or her interest on retirement?
- In the event of retirement, death or disability of a partner, how is that partner’s interest to be valued? How is the acquisition of that partner’s interest to be funded by the continuing partners?
- Will the partners be taking out insurance to fund the buy-out of a partner in instances of death or disability? If so, is there an agreement in place providing that the insurance proceeds may only be used by the other partners to fund the buy-out of the deceased or disabled partner’s interest?
- Have the partners considered tax implications of the exit arrangements and/or insurance arrangements?
From a business continuity perspective, it is critical that the arrangements between the partners are properly documented so as to avoid uncertainty, unnecessary expense and angst for the retiring and continuing partners. From an estate planning perspective, well drafted agreements help ensure that if a partner dies or suffers a permanent disability, his or her estate or personal representatives have a clear pathway to convert a partnership interest into cash.
For business people with partnership or corporate interests, estate planning involves more than making a will and granting powers of attorney. You must also address how your partnership interests are dealt with in a range of circumstances.