Physician Shareholder Agreement: Everything You Need to Know
A physician shareholder agreement may not seem like necessary business protection if you're opening a practice with your best friend, Dr. Smith.3 min read
A physician shareholder agreement may not seem like necessary business protection if you're opening a practice with your best friend, Dr. Smith. But if a messy divorce happens, you want the legal cushion that a shareholder agreement offers.
What a Shareholder Agreement Contains
As a rule, a shareholder agreement addresses three main topics:
- Rules for handling shares, including sales and transfers
- The shareholders' financial relationship to each other
- Guidelines for decision-making
If your practice is organized as a professional corporation, you are legally required to file articles of incorporation with the state in which you practice. These articles and your shareholder agreement offer legal protection to all partners.
Rules for Handling Shares
One of the key issues addressed in the shareholder agreement is stock ownership. Usually, your initial capital contributions will determine your ownership percentage, but not always. A shareholder's agreement spells out the contribution terms and what individual shareholders receive in return for contributions.
How this is resolved depends on the company and agreement. A common method is an ownership determined by capital contribution, though some companies allocate shares based on a combination of factors like seniority, the amount of the contribution, etc.
Although the agreement creates guidelines about contributions, it cannot be used to force another shareholder to contribute beyond their agreed-upon amount. Shareholders can contribute more, as this often comes with additional shares that boost their voting interest.
Sales and Transfers
What about the opposite situation — a group of shareholders decides to sell and another group decides to buy?
Unless specified in the agreement, a shareholder may not be allowed a say without direct participation. Conversely, the agreement may state that such a sale cannot occur unless the shareholders all agree.