How to buy a medical business? What to look for in the process?

Acquiring a medical business can be both a need and a necessity. This segment is quite specific from the point of view of property change, and therefore agreements of this kind are quite rare.

However, constantly working with medical clinics and other health care facilities, as well as with businessmen, our lawyers have supported a number of transactions related to the change of the owner of the medical business. The main features of such transactions will be described in this publication.

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Does it matter what to sell - an LLC or a sole proprietorship?

Business structure is one of the first factors to be considered when selling medical business. While the transfer of a share interest in the authorized share capital of a legal entity is not a very complicated procedure, this method is not available for an individual entrepreneur  at all. In this case, we can only talk about a step-by-step transfer of assets:

• An individual entrepreneur sells the clinic premises to the buyer, or reissues the lease agreement to the buyer;
• An individual entrepreneur fires the employees, and then the buyer employs them back;
• An individual entrepreneur sells medical equipment to the buyer, or the buyer becomes a new tenant under an equipment lease;
• An individual entrepreneur and the buyer sign trademark transfer agreements, etc.

In addition, the buyer will have to undergo all permitting procedures, such as obtaining a Medical License, etc. Despite the relative complexity of the procedure, it still makes economic sense, especially at the regional level, among small providers of medical services.

For LLCs, it will be sufficient to sell the corporate rights (in full or in part, for example, when the buyer is a co-owner or investor). Of course, such procedures are subject to registration, but employees, premises, and most importantly, permits will remain unchanged, which means that the new owner will be able to continue the business immediately.

When purchasing a business with a significant market coverage, one should pay attention to the antimonopoly restrictions, obtain preliminary conclusions of the antimonopoly authorities and approval for the acquisition of a share of such business.

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Audit of previous activities of the medical business for sale

When you become the owner of a pre-existing business, you should analyze all the documentation that was kept. The standard checklist can be divided into 2 types.

1. Documentation that shall be maintained by any business:

• Accounting documents and tax reporting;
• Lease agreements for premises and equipment, or relevant ownership documents for such facilities;
• Employment agreements with employees, confirmation of absence of arrears in payment of taxes and fees in respect of hired employees.

2. Special documentation directly related to the medical component of the business:

• Documents submitted when applying for a license (they shall be checked for compliance at the time of obtaining the license, and at the time of selling the business)
• Reporting medical forms (including so-called “zero” forms) that should have been filed during the company’s existence;
• Patients’ medical records and other documentation.

In addition, it is not superfluous to check the company in the official registers for legal disputes, criminal proceedings of tax debt. Even a simple Google search can provide information about reputational risks that can be inherited along with financial and other types of sanctions.

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How to start a medical business for sale?

Starting a medical business specifically for sale is a relatively complex task due to the peculiarities of obtaining permits.

Thus, when obtaining a Medical License, it is necessary to specify the specific medical personnel who will work in the health care facility at the time of submitting documents, and within a month after obtaining the license, to employ these employees. The fact of employment, as a rule, leads to the need to sign employment agreement, pay wages, which in conditions of uncertainty of the date of purchase may become an unsustainable investment.

Therefore, when choosing a scheme for organizing a medical business for sale, the following criteria should be taken into account:

• Such business should be in the form of a legal entity (ideally a LLC), as this simplifies the procedure of asset transfer;
• The premises must be brought in line with sanitary and building standards, and a sanitary inspection report must be obtained;
• With regard to the use of the premises or equipment, it is the seller’s choice, but the most popular are leases where the seller is the owner of the property or has long-term lease guarantees from the owner;

By the time of sale, it is not recommended to obtain a Medical License for the same reasons as those mentioned at the beginning of the section. In addition, if the buyer wants to hire its own staff, such changes should be reflected in the documents, which should be submitted to the Ministry of Health within 30 days.

At the same time, today the law does not set a period for consideration of documents on amendments to the license, and therefore such documents can be considered even for several months. At the same time, obtaining a new license under the law takes 10 business days, which usually takes 3-4 weeks in practice, but is nevertheless faster than making changes.

If you want to buy a ready-made medical business, don’t hesitate to contact us. We have extensive experience in supporting such transactions and will monitor every aspect of the case.