A practice can be sold through a sale of assets or shares. Asset sales of healthcare clinics s far more common than share sales. To explain – In an asset sale of a clinic, the assets transfer to the purchaser, but ownership of the business entity (not the actual clinic) remains with the vendor. Assets include things such as plant, equipment, stock, patient data base, intellectual property, website and goodwill. In a share sale, the shares in the company running the clinic are transferred to the purchaser. Each type of clinic sale has advantages and disadvantages for both parties. Below is a brief outline of these…
Clinic Sale – Assets
Advantages for Vendors
Vendors can choose to sell certain assets and retain some assets of the business. The vendors will usually not need to provide extensive warranties. The vendor can retain the business entity, which may be appropriate if they run another business through the same entity or if they want to use this business entity to start a new business.
Disadvantages for Vendors
The vendor must seek the release of any security interests encumbering the assets of the business before settlement. Potential liabilities which are not directly linked with the assets (e.g. future disputes and litigation) are not transferred to the purchaser. After the sale of the clinic, the vendor may be left with a structure with retained profits. This could result in taxation consequences.
Advantages for Purchasers
For purchasers of clinics, asset sales usually pose fewer risks. Only the risks associated with the assets (and not the business entity) are transferred to the purchaser. For this reason, the purchaser requires fewer warranties. The purchaser can choose to only purchaser assets. If certain criteria are met, the sale of the business can be GST free (clinic sold as a ‘going concern’). The purchaser can usually choose which employees will be retained at the practice. Any employees of the clinic who are not retained can be terminated by the vendor immediately before completion.
Disadvantages for Purchasers
Transferring contracts (and some assets) may be difficult, or impossible, in some circumstances. For example, a key clinical staff member may not want to give consent to assign his or her employment contract to the new clinic purchaser. Stamp duty may be payable on the sale of land if property is included in the sale. If the business is located in Queensland, stamp duty will also be payable on the assets of the business (such as plant and equipment).
Sale of Shares
Advantages for Vendors
Shareholders may be able to access tax concessions and capital gains tax rollover benefits for the sale of shares which is one of the main reasons a clinic owner will choose to sell their clinic as a sale of shares. For the vendor, all potential liabilities transfer with the entity to the purchaser.
Disadvantages for Vendors
As the liabilities of the business will remain with the company, the purchaser may require extensive warranties and personal indemnities.
Advantages for Purchasers
Contracts for employees, independent contractors and other parties remain with the company, and do not need to be transferred to another entity. Intangible assets, such as intellectual property and licences, will not need to be assigned to a new entity. There is no GST on a sale of shares. Unless the company is liable for landholder duty, stamp duty is not payable on a sale of shares
Disadvantages for Purchasers
Generally, share sales are more complex than asset sales, and require more comprehensive due diligence by the purchaser which will usually result in a larger accounting and legal fees. The purchased company could have hidden risks, such as existing disputes, outstanding tax and future litigation. While staff contracts will not need to be assigned, some contracts will require the staff member to consent if there is a ‘change in control’ of the company. Employees will be transferred with the company. If the purchaser wishes to terminate particular employees, they must do so in accordance with relevant laws after settlement.