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Pharmacy businesses can be owned via various ownership structures. Whilst the terms of the purchase of business interest are important, equally as important (perhaps even more so!) is the ownership agreement (such as a partnership agreement or shareholders agreement) which governs your exit.

Voluntary exit

You may wish to sell your interest if you are retiring, relocating, buying into another business or due to other personal circumstances.

Most ownership agreements will set out a process you need to follow to sell your interest. A notice period will normally be required and there will usually be a series of other requirements to satisfy in specific timeframes. Key parts of this process often involve:

• the ongoing owners having a right to buy your interest before it is offered to a third party.
• a method for calculating the purchase price for your interest.
• timelines for the sale and purchase of your interest.

There may also be terms in your ownership agreement restricting you from being involved in another pharmacy business within a certain area and for a certain period of time after your exit. You need to be aware of these restrictions when making plans in relation to your exit and business or career interests moving forward.

Forced exit

Circumstances may arise which force you to sell your interest. These can include you:

• breaching a term of the ownership agreement.
• passing away or suffering from a total and permanent disability.
• being involved in an insolvency event or committing a criminal act.
• ceasing to hold registration as a pharmacist in Australia.

Usually, these circumstances will trigger the same sale process under the ownership agreement however, where a party has acted in a way that has or could have caused loss and damage to the other owners (e.g. committed a criminal or fraudulent act), a defined reduction in the purchase price for the departing owner’s interest might be applied.

A key consideration for owners who are entering an ownership agreement is what will happen if the other owners do not wish to buy the departing owner’s interest and the departing owner is not able to find a suitable third party purchaser (or one the other owners approve of). This is often an aspect of the ownership arrangement the parties have overlooked or not considered in sufficient detail. Options include:

• the ongoing owners only having the right to reject a proposed third party purchaser on one occasion (i.e. the outgoing owner can sell to the second party it proposes).
• the outgoing owner having to remain in the business until the other owners agree to buy them out or approve of a third party purchaser.
• the whole business being sold and the ownership structure being wound up.

If pharmacy owners do not have a suitable ownership agreement in place, the process for navigating an exit is far more difficult, time consuming and expensive. The outgoing owner will have to rely on other governing documents if they exist (e.g. a company constitution), applicable law (e.g. Partnership Act 1981 (QLD)) and/or its negotiations to reach an agreement with the remaining owners. It is therefore crucial you:

• have in place an appropriate ownership agreement for your pharmacy business.
• understand your rights and obligations regarding an exit from the ownership structure (be it yourself or one of the other owners).
• obtain legal advice before entering an ownership agreement and when you are considering an exit.

If you would like more information about exiting a pharmacy business or any matter relating to pharmacy ownership, please contact Vitality Law Australia by email at hello@vitalitylawaustralia.com.