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Buying in to medical practices entails special planning

Erica K. Halley

Erica K. Halley represents individuals and businesses in a broad range of transactional matters.

In this article, Oklahoma City Attorney Erica K. Halley answers questions about the basics of investing in a medical practice.

What does it mean to buy in to a medical practice?

Small health care practices are typically owned by one or more of the health care providers at the practice. Such practices are usually organized as professional corporations (PCs) or professional limited liability companies (PLLCs). Although PCs and often PLLCs are considered corporations for legal and tax purposes, where the owners are technically “shareholders,” owners of a medical practice are colloquially referred to as “partners.” For a junior provider in a small practice, the pathway to partnership and the partnership itself can take on many different forms, but the key concerns are generally the same in every case.

Health care providers interested in purchasing ownership in a practice should invest with a comprehensive understanding of the valuation of the business, the compensation structure among partners and the exit strategies available to each of the partners. Retaining advisers who can alleviate this burden, such as an accountant and an attorney having experience in medical practice transactions, will ensure the tax implications are favorable and the exposure to risk is minimized.

How are medical practices valued and how do partners buy in?

Ordinarily, valuations consider the values of the hard assets, the accounts receivables and other intangibles, and the goodwill of the practice. Unlike other types of companies, it is common in health care practices for all partners to share ownership equally. This means a new partner to an existing two-partner practice will own a full 33.33% of the practice either immediately or shortly after the buy-in.

How the new partner pays for his or her share of the business varies. Sometimes, buy-ins are structured over time. For example, if a buy-in were to take place over the course of three years, the new partner would pay one-third of the total purchase price every year, and he or she would slowly purchase their interest in the practice, not becoming an equal partner with full voting power until the third payment in the third year. Alternatively, a practice may grant the new partner his or her full ownership (with full voting power) at the outset, and treat the buy-in like a loan being paid off over time. In either event, the payoff of the purchase price is frequently in the form of income-shifting or plain reductions in salary and/or bonuses.

How are partners paid?

Compensation structures in medical practices also differ across the board. Many times, a partner’s compensation is determined, at least in part, by the partner’s “productivity” in the practice according to how much revenue each provider generates, how many patients each provider sees, how many hours each provider works, or a combination of any of the foregoing. Other variables used in determining partner compensation include the management duties of the partners, seniority, special training and allocations of expenses. Such formulas among the partners ought to be negotiated and agreed upon prior to a buy-in.

How do partners get out of practices?

Before partners buy in, they need to understand how to get out — and how the other partners can get out at their expense. Shareholder agreements in professional corporations and operating agreements in professional limited liability companies usually set forth the procedures for a partner leaving the practice in the event of employment termination, retirement and death, as well as the calculations for valuing the exiting-partner’s ownership. In most cases, the other partners will be ultimately responsible for buying that partner (or his/her estate) out of the business. In addition, practices often bind their partners to noncompetition covenants, which restrict them from competing with the practice after they leave the practice.

 

Erica K. Halley is an attorney with Phillips Murrah.

#MeToo movement reaches merger transactions

In this article, Oklahoma City Attorney Erica K. Halley discusses the “#MeToo” movement and the Weinstein Clause as they relate to requirements in buying and selling companies.

Erica K. Halley

Erica K. Halley represents individuals and businesses in a broad range of transactional matters.

What is the #MeToo movement and how did it start?

In October 2017, The New York Times published an article detailing decades of sexual misconduct by film producer Harvey Weinstein. The scandal ultimately left Weinstein disgraced, his film studio bankrupt and victims of sexual harassment and assault emboldened. The #MeToo movement ensued, wherein victims tweeted (or otherwise went public with) their experiences, which highlighted the prevalence of such misconduct in the workplace. As a result, the chickens have come home to roost for many predators in power. This means, among many other things, companies must adapt and prepare for the potential PR and legal nightmare that necessarily follows misconduct allegations against employees, particularly those having influence over compensation, promotions/demotions and workplace culture. One way we see the #MeToo movement in the doldrums of corporate paperwork is through what is becoming known as the “Weinstein Clause” in merger and acquisition agreements.

What is a Weinstein Clause?

When a company is sold or merged, the selling company is typically required to make a litany of representations to the buyer concerning the status of the selling company. A Weinstein Clause is a representation made by the selling company where the seller promises that none of the selling company’s employees is the subject of allegations of sexual misconduct. In its broadest form, a seller represents that no allegations of sexual harassment or misconduct have been made to the company against any individual in his or her capacity as an employee of the company or any of its affiliates. Usually, if a seller makes a false representation, the buyer can sue the seller for all damages resulting from the breach.

How do sellers negotiate Weinstein Clauses in M&A transactions?

Just like any representation in an M&A (merger and acquisition) transaction, sellers will try to limit the scope of the representation by adding knowledge qualifiers (ex: to the seller’s knowledge, there are no sexual harassment or misconduct allegations), defining or reducing the look-back period (ex: the seller represents that there have been no allegations in the past five years) and minimizing the number or type of employees subject to such allegations (ex: the seller represents that there have been no allegations against executive level employees). In addition, the lawyers on both sides will probably spend time negotiating the definitions of “sexual harassment” and/or “sexual misconduct,” as such terms are open to interpretation and, therefore, ambiguity. After the representation itself is determined, if the seller is aware of any such allegations, the seller will try to negotiate an exception to the representation and describe the allegations on a schedule attached to the agreement. In this case, the seller is essentially saying, “except for that one time, which buyer is going to overlook, there have been no allegations of sexual harassment/misconduct.”

Why should people care?

The Weinstein Clause itself will probably not have a noticeable impact on the viability or essential terms of M&A transactions. And most people will probably never lose sleep over how broadly or narrowly any Weinstein Clause is negotiated. However, everyone is affected by companies (some more directly than others), and most companies are led by individuals who have power and influence over other employees. The emergence of the Weinstein Clause is indicative of a broader social change. The Weinstein Clause provides evidence that sexual harassment and misconduct by such individuals is not tolerated, safe and respectful company cultures matter, and victims of sexual harassment and misconduct ought to be protected.

 

Published: 5/7/19; by Paula Burkes
Original article: https://newsok.com/article/5630647/metoo-movement-reaches-merger-transactions

Phillips Murrah announces 21 attorneys named to 2018 Super Lawyers list

2018 Super Lawyers list

Super Lawyers

Phillips Murrah is honored to have 21 attorneys in 2018 recognized by the Super Lawyers rating service.

2018 Oklahoma Super Lawyers

2018 Rising Stars

NewsOK Q&A: Budget act makes auditing partnerships easier, more efficient

From NewsOK / by Paula Burkes
Published: January 19, 2018
Click to see full story – Budget act makes auditing partnerships easier, more efficient

Click to see Erica K. Halley’s attorney profile

Erica K. Halley represents individuals and businesses in a broad range of transactional matters.

Q: What is the Bipartisan Budget Act of 2015 and why should LLCs and other partnerships pay attention?

A: Effective this month, the Bipartisan Budget Act of 2015 changes how the Internal Revenue Service audits and assesses taxes of entities taxed as partnerships, including most limited liability companies. One such change includes replacing the “Tax Matters Partner” with the “Partnership Representative,” which is much more than a mere name modification. In essence, the act makes auditing partnerships easier and more efficient for the IRS, so understanding the weight of designating your Partnership Representative is critical in preparing for your company’s increased exposure to potential audits beginning this year.

Q: What is the difference between the Tax Matters Partner and the Partnership Representative?

A: There are two key differences between the Tax Matters Partner of the past and the Partnership Representative of the present and future. First, the Partnership Representative isn’t necessarily a partner (or member, in the case of an LLC) of the entity. Like a manager of an LLC, a Partnership Representative may be any person the company deems fit to serve in such role, who may or may not be an owner of the company. Second, the Partnership Representative has complete authority to act on behalf of the company when communicating with the IRS. Importantly, and unlike the laws previously in effect, there’s no statutory obligation to notify the partners or members of the existence or status of an audit, much less include them in any decisions that may significantly impact the tax treatment of the company.

Q: What do businesses need to do to prepare for the change?

A: The partners or members of a company will need to agree on the expectations they have for their Partnership Representative and the desired scope of his or her authority. Then, they should amend their company’s governing documents, such as their partnership agreement or operating agreement, accordingly. In addition to providing for the appointment, removal and replacement of the Partnership Representative, they also should consider demanding timely notice to each partner or member of all IRS communications. Other considerations include requiring the Partnership Representative to make certain elections on behalf of the entity, or obligating the Partnership Representative to use his or her best efforts. Companies also may want to add certain indemnification provisions that bind the Partnership Representative to his or her duties with respect to an audit. Finally, and essentially, they must designate their Partnership Representative on their entity’s return each year. As the IRS isn’t bound by any partnership or operating agreement, if a company fails to make the designation on the return, the IRS may select a company’s Partnership Representative for them.

Phillips Murrah attorneys author update to commercial lending law reference book

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The two volumes “Commercial Lending Law, Second Edition: A Jurisdiction-by-Jurisdiction Guide to U.S. and Canadian Law” updated by Phillips Murrah attorneys pictured next to the previous edition.

A group of Phillips Murrah attorneys contributed to updating and creating a new edition of “Commercial Lending Law, Second Edition: A Jurisdiction-by-Jurisdiction Guide to U.S. and Canadian Law,” published by the American Bar Association.

The book is meant to be a resource for attorneys who help clients across different jurisdictions.

“A lot of the law impacting commercial lending varies from state to state, sometimes significantly,” said J. Mark Lovelace, Phillips Murrah Director. “The two volumes have separate chapters on local law and practice recommendations for each state, the District of Columbia and Puerto Rico, plus a chapter for Quebec and a combined chapter for the other Canadian provinces.

Each chapter follows the same format, he said. Most attorneys who represent commercial lenders will at least occasionally deal with the laws of other jurisdictions.

“This guide will provide an excellent first place to start,” Lovelace said. “It doesn’t take the place of consulting an attorney in that other jurisdiction, but the book provides helpful initial answers and should give the attorney a good idea of the local issues to be considered.”

Phillips Murrah’s attorneys were provided a template developed by Brian Hulse, with the Davis Write Tremaine Firm in Seattle, along with the other original editors of the book to update it for the new edition.

“The 2016 book expanded significantly on the original 2009 edition, and that was the first time we worked with Brian,” Lovelace said. “Josh Edwards and I also worked with Brian on a separate book published by the ABA in 2013 called The Law of Guaranties, A Jurisdiction-by-Jurisdiction Guide to U.S. and Canadian Law.  He has been a tremendous resource and working partner for us.”

The 2016 update on commercial lending law captures changes in relevant law and practice in Oklahoma, but more significantly covers numerous additional issues that the editors wanted to cover this time around, he said.

“The 2009 chapter was our base, and Monica Ybarra provided research and a first draft on most of the new areas to be covered in the update,” Lovelace said. “John Hastie had contributed significant portions to the 2009 chapter, particularly on real estate lending and foreclosure law, and these required a relatively minor amount of updating.

“I wrote and edited a number of sections, but Josh served as the primary editor of our 2016 chapter, with assistance from Erica Halley, and it’s more than fair to say he brought it all together.”

As a result, the new edition had contributions from attorneys at Phillips Murrah with experience ranging from one year to almost 50 years in practice, he said.

For more information on “Commercial Lending Law, Second Edition: A Jurisdiction-by-Jurisdiction Guide to U.S. and Canadian Law” and how to purchase it, click here.

Phillips Murrah attorneys support i2E 2015 BrewFest

Attorneys Monica Ybarra, Dawn Rahme, and Erica Halley at Brewfest

Attorneys Monica Ybarra, Dawn Rahme, and Erica Halley at Brewfest.

Hundreds of patrons filled the Chickasaw Bricktown Ballpark on Nov. 5 to support i2E’s (Innovation to Enterprise) annual OKBio BrewFest.

“The intellectual activity surrounding the annual i2E BrewFest channels the exciting physical changes in downtown Oklahoma City, the Oklahoma Health Center, Bricktown, Deep Deuce and the state,” Attorney Mary Holloway Richard said. “Where else can you find entrepreneurs mingling to discuss their business plans and dreams with one another and with support professionals like the Phillips Murrah team that supports technical businesses as they establish themselves and expand?”

“From conversations with a graduate student physiologist focusing on lessening the impact of retinitis pigmentosa to discussions with an OCU Botany professor and a young distiller known for his marketing genius who is expanding into new markets—all this on a beautiful fall evening at the ballpark.  Helping clients achieve their business goals in research, health care, product development is a exciting as it gets.”

Lauren Branch and her husband Phillips Murrah Director Doug Branch.

Lauren Branch and her husband Phillips Murrah Director Doug Branch at Brewfest.

The event featured samples from 23 of Oklahoma’s local craft beer, wine and spirits producers.

“OKBio BrewFest is an annual fall event to shine a spotlight on bio in Oklahoma and provide support for OKBio, which among other things provides BIO International scholarships to Oklahomans every year,” said i2E President Scott Meacham in an article about BrewFest.

Other event sponsors include Crowe & Dunlevy, Foundation HealthCare, Greater Oklahoma City Chamber, Oklahoma Gazette, Hall Estill, Caisson Biotech, Hit Design, VWR International, McAfee & Taft, Dunlap Codding, and Woodland & Associates.

Read more about BrewFest here.

Phillips Murrah welcomes two new attorneys

EKH AMS cutout

Erica K. Halley and Ashley M. Schovanec have joined the firm as associate attorneys.

Erica K. Halley has joined Phillips Murrah’s Transactional Practice Group as an associate attorney.

Halley represents individuals and businesses in a broad range of transactional matters.

Phillips Murrah also welcomed Ashley M. Schovanec to the firm’s Litigation Practice Group as an associate attorney.

Schovanec represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

Halley and Schovanec are recent graduates of the University of Oklahoma School of Law.