There are a number of critical issues that must be considered and satisfactorily negotiated in structuring the sale or purchase of a practice.

Because the sale of a practice is usually an emotional experience, it is usually best to involve trusted legal and tax advisors in this process.

Generally speaking the purchase and sale of a business can be structured in either of two basic forms:

The most commonly used transaction method is an asset transaction. Most acquirers rarely purchase the stock in an entity because of the liability and tax treatments that would be assumed by the buyer. In an asset sale the buyer only purchases the “assets” or the “book of business” and tangible assets from the seller. An asset transaction generally favors the buyer because the buyer assumes no liabilities arising from the purchased practice unless specified separately in the purchase agreement. In addition, the buyer acquires a new cost basis in the assets which may allow a larger depreciation deduction to be taken in the future. The seller typically owes capital gains tax on the difference between his/her basis in the assets and the stated sale price.

The second type of transaction is the purchase of the stock of the seller’s corporation. Stock transactions generally transfer all of the assets and liabilities of the seller’s corporation to the buyer unless specific provisions are made within the agreement. The buyer in a stock transaction generally records all assets (tangible and intangible) and liabilities of the practice without an adjustment on the books. As a result, the depreciation deductions will likely be lower compared to a purchase of assets. Under this type of transaction the seller owes capital gains tax on the difference between his or her basis in the shares and this stated sale price.

Many practitioners go through the process of identifying buyers and sellers and even negotiating the purchase price, but often fail to consummate the transaction because of an inability to agree to terms.

Some of the most important issues that need to be negotiated include:

• Stock sale or asset sale
  
• Asset sale of consulting agreement
  
• Non-compete agreement
  
• Buy-back provision
  
• Representations and Warranties
  
• Indemnification and hold harmless clauses
  
• Performance of duties (for both the buyer and seller)
  
• Resolution of conflicts
  
• Protection
  
• Security or collateral
  
• Down payment
  
• Payment terms