Author: Shardul Gaikwad

What Happens to Business Contracts When a California Business Is Bought or Sold?

When a California business changes hands, the contracts that keep it running do not always change hands with it. Leases, vendor agreements, customer contracts, and licenses each have their own rules about whether they can be transferred, who must approve the transfer, and who remains responsible afterward. Buyers who assume everything will simply carry over can find themselves without a location or a key supplier, and sellers can remain on the hook for obligations they thought they had left behind. Here, our Fremont attorney for buying and selling a business explains what business owners should know about contracts in a California business sale.

The Structure of the Deal Largely Determines What Happens to Contracts

The first question is whether the transaction is an asset sale or a sale of the ownership interests. In a sale of stock or membership interests, the company itself stays in place and remains the party to its contracts, so most agreements continue without any assignment. Even then, some contracts include change of control provisions that treat the sale of the company as a trigger for consent or termination rights. In an asset sale, the buyer acquires selected assets and contracts from the seller, so each contract that the buyer wants must be transferred. California’s Civil Code draws a useful distinction here. A right arising out of an obligation may generally be transferred, but the burden of an obligation may be transferred only with the consent of the party entitled to its benefit. In plain terms, a seller can often assign its rights under a contract, but a buyer who wants to take on the duties usually needs the other party’s agreement, often through an assignment and assumption agreement or a novation. Without a release, the seller may also remain liable to the other party after closing.

Leases, Vendor Agreements, and Customer Contracts Raise Different Issues

Commercial leases are often the most important contract in a business sale. Under California’s commercial lease statutes, a tenant generally has the right to transfer its interest unless the lease restricts transfer, and a lease can require the landlord’s consent or can even prohibit transfer outright. If a lease requires consent but states no standard, California law implies that the landlord may not unreasonably withhold it. Many leases also treat a sale of the tenant’s ownership interests as a transfer, and landlords may ask for a new guarantee, a larger deposit, or revised terms as a condition of approval. Vendor and customer contracts raise different concerns, including anti-assignment clauses, exclusivity or minimum purchase commitments, and agreements that were negotiated based on the personal relationship or reputation of the seller. Licenses and permits also deserve attention, because many professional and business licenses do not transfer automatically and may require the buyer to apply on its own.

During due diligence, the parties should review each important contract for:

Anti-assignment and change of control provisions
The standard for giving or withholding consent
Termination rights triggered by a sale
Personal guarantees tied to the contract
Notice requirements, renewal terms, and exclusivity clauses

Bulk Sale Rules and Creditor Claims Can Affect Asset Deals

California’s bulk sales law adds another layer for certain asset sales. It can apply when the seller’s principal business is selling inventory from stock, including businesses that manufacture what they sell and restaurants, although sales below $10,000 or above $5 million in value and certain other transactions are exempt. In those cases, the buyer must obtain a list of the seller’s business names and addresses from the past three years and give notice of the sale at least 12 business days before it occurs. A failure to follow these rules does not necessarily undo the sale, but it can expose a buyer to claims from the seller’s creditors. Because the parties negotiate who is responsible for existing liabilities, the purchase agreement should clearly allocate which debts and contract obligations the buyer is assuming and which remain with the seller.

Contact Our Fremont Attorney for Buying or Selling a Business

Every sale involves its own set of contracts, and the time to identify the problematic ones is before a purchase price is agreed. Lynnette Ariathurai represents both buyers and sellers in California business transactions, and our Fremont buying or selling a business attorney can help you map out which contracts will transfer, which need consent, and how to protect your interests at closing. Whether you are preparing to sell or considering an acquisition, we welcome the chance to discuss your plans with you. Contact The Law Firm of Lynnette Ariathurai today to learn more about what happens to business contracts when a California business is bought or sold and schedule a confidential consultation.

business contract transfers, buying a business, selling a business

Personal Guarantees: When can a California Business Owner Become Personally Liable?

Forming a corporation or LLC is supposed to separate an owner’s personal assets from the debts of the business. A personal guarantee can undo that separation for a specific obligation, and it often happens quietly. Landlords, banks, equipment lessors, and suppliers routinely ask owners of young or closely held companies to sign guarantees, and the paperwork is easy to overlook in a stack of closing documents. Here, our Fremont business contracts lawyer explains how personal guarantees work in California and what business owners should understand before putting a signature on one.

A Personal Guarantee Is a Separate Promise That Belongs to You

When an owner signs a guarantee, they are making an independent promise to answer for the company’s debt or default. The creditor no longer has to look only to the business. California law treats a guarantor and a surety as essentially the same thing, and under the state’s suretyship statutes, a surety who has assumed liability for payment or performance is liable to the creditor immediately upon the principal’s default, without demand or notice. In practical terms, if the company misses a rent payment or defaults on a loan, the creditor may pursue the owner personally, even though the lease or loan was technically signed by the entity. The corporate or LLC structure remains in place for everything else, but it offers no shelter for the specific obligation the owner agreed to guarantee.

California Provides Some Protections, but Most of Them Can Be Waived

California’s Civil Code contains several default protections for guarantors. One provides that a surety’s obligation cannot be larger in amount, or more burdensome in other respects than the obligation of the principal. Others can exonerate a guarantor when the creditor changes the underlying deal without the guarantor’s consent or can require a creditor to pursue the business before the guarantor in some circumstances. These rules sound reassuring, but California law also allows a guarantor to waive them. Under Civil Code section 2856, a guarantor can waive a broad range of rights and defenses, and a provision that expresses an intent to waive is generally effective. Lenders and landlords know this, and their standard guaranty forms almost always include sweeping waiver language. Courts have declined to enforce some waivers in narrow circumstances, but an owner should not assume that the statutory defaults will rescue a guarantee that was signed with the waivers in place.

Common Guarantees and Ways to Limit the Exposure

Owners tend to underestimate how far a guarantee reaches. Common examples include:

Commercial leases, where a guarantee may cover rent for the full term, plus renewals, extensions, operating expense charges, and attorney fees
Business loans and lines of credit, where a continuing guarantee may cover future advances and increased balances, not just the original amount
Equipment financing and vehicle leases, which often require an owner to guarantee payments for the entire financing term
Vendor credit applications, where a personal guarantee clause can appear in the fine print of an account application
Franchise agreements, which frequently require the owners of the franchisee entity to guarantee its obligations

Many of these exposures can be narrowed through negotiation before signing. Owners may be able to cap the guaranteed amount, limit the guarantee to a defined period, reduce it after a record of on-time payments, exclude renewals or amendments unless the guarantor consents in writing, or divide liability among co-owners so that one owner is not left carrying the entire obligation. If a business has multiple owners, the operating or shareholder agreement should also address contribution, so that an owner who pays on a guarantee has a clear right to be reimbursed by the others. Keeping a central record of every guarantee the owners have signed is a simple step that helps avoid surprises when a business is later sold, refinanced, or restructured.

Talk With Our Fremont Business Contracts Attorney Before You Sign

Lynnette Ariathurai has spent decades helping California business owners review and negotiate the agreements that shape their risk, including leases, loan documents, and vendor contracts. If a creditor has put a guarantee in front of you, or if you want to understand what you have already signed, our Fremont business contracts attorney is ready to walk through the language with you. We can help you understand how personal guarantees can make California business owners personally liable. The Law Firm of Lynnette Ariathurai works with employers and business owners throughout the Bay Area, and we invite you to reach out for a confidential consultation.

business debt liability, personal guarantees

Why Equal Ownership Creates a Unique Kind of Risk

Two owners who split a company evenly often start out aligned on nearly everything. Over time, though, priorities can diverge, and a business that once ran smoothly with two equal decision-makers can grind to a halt when neither owner is willing to defer to the other. This is one of the most common, and most damaging, problems facing California business owners in a 50/50 arrangement. Employers who understand how the law treats deadlock, and who put mechanisms in place before a disagreement becomes permanent, are far better positioned to keep the business running.

Resolving a 50/50 Business Ownership Deadlock in California

A 50/50 split can work well when both owners agree on the company’s direction, but it leaves no built-in tiebreaker when they don’t. Unlike a company with a majority owner, or a board with an odd number of directors, a 50/50 structure has no default mechanism for breaking a tie on a contested vote. This becomes especially damaging when the disagreement touches something the business genuinely needs to resolve, such as whether to take on debt, terminate a key employee, enter a new contract, or bring in an outside investor. When neither owner can get the votes needed to act, and neither is willing to sell out or step back, the company can drift into paralysis while bills still come due and decisions still need to be made.

What California Law Provides When Owners Cannot Agree

California law recognizes deadlock as a serious enough problem that it provides a specific remedy for corporations. Under the California Corporations Code, a shareholder, or one-half or more of a corporation’s directors, may file a verified complaint seeking involuntary dissolution of the corporation on several grounds, including that the owners are so divided that they cannot manage the company’s affairs. Dissolution, though, is a drastic and often undesirable outcome for a business that otherwise has value as a going concern. California law addresses this by giving the corporation, or shareholders holding at least fifty percent of the voting power, the option to avoid dissolution entirely by instead purchasing the shares of the shareholder seeking to dissolve the company at a court-determined fair value. This buyout mechanism generally functions as an alternative to court-ordered dissolution, giving one side a path to keep the business intact rather than winding it down. Limited liability companies face similar dissolution and buyout issues under California’s LLC statutes, and the specific outcome can depend heavily on how the operating agreement is written.

Practical Ways to Break a Deadlock Before It Reaches Court

Litigation over deadlock is expensive, slow, and can damage a business’s relationships with clients, lenders, and employees long before a judge ever rules. Business owners in a 50/50 structure can generally avoid or resolve deadlock more efficiently by considering:

A written shareholder, partnership, or operating agreement that designates a tiebreaking mechanism, such as a neutral third director, an outside advisor, or a rotating decision-making authority for specific categories of decisions
A shotgun or “buy-sell” clause that allows one owner to offer to buy out the other at a stated price, with the other owner having the option to instead buy at that same price
A mandatory mediation or arbitration clause requiring the owners to attempt a structured, confidential resolution process before either can pursue litigation
Pre-agreed valuation methods so that, if a buyout does become necessary, the owners are not negotiating the company’s value for the first time in the middle of a dispute
Clear escalation procedures identifying which decisions require unanimous consent, which can be made by either owner alone, and how a disputed decision gets resolved in the interim

Putting these provisions in place while the ownership relationship is still functioning well is almost always more effective, and far less costly, than trying to negotiate a resolution once a dispute has already taken hold.

Contact Our Fremont Business Lawyer for Ownership Disputes

Business deadlock rarely resolves itself, and the longer it continues, the more damage it tends to cause. Lynnette Ariathurai is a California business attorney with extensive experience helping business owners prevent and resolve ownership disputes, including 50/50 deadlock situations. Our business owners’ dispute resolution attorney can help you evaluate your options, whether that means drafting stronger governance provisions now or working through an active disagreement with your co-owner. Please do not hesitate to contact us today for a confidential consultation.

business legal advice, partnership legal advice

A Business Partner is Walking Away? How to Protect Your Business

At some point, many California business owners face the same question: what happens when a partner decides to walk away? Whether the departure is amicable or contentious, the remaining owners are the ones left to keep the company running, and the way that exit is handled can determine whether the business survives it intact. Partnerships who understand California’s default rules, and who put a written agreement in place before a partner ever announces plans to leave, are in a far stronger position to protect the company.

What Happens When a Business Partner Wants to Leave a California Company?

The first place to look when a partner wants out is the partnership , operating , or shareholder agreement that governs the business. A well-drafted agreement typically spells out how an exit is triggered, how the departing owner’s interest is valued, how that owner is paid out, and what happens to any debts or obligations that owner personally guaranteed. If your company has this kind of agreement in place, the process of the departure, while still often stressful, at least has a roadmap. The bigger challenges tend to arise when the agreement is silent, outdated, or was never put in writing in the first place, which is more common than many business owners expect, especially among partnerships formed informally between friends or family members.

California Law Fills the Gap When the Agreement Doesn’t Address an Exit

For general partnerships, California’s Uniform Partnership Act supplies default rules that apply automatically when a partnership agreement does not address a partner’s departure. Under these rules, once a partner is dissociated from the partnership, the business generally must purchase that partner’s interest for a buyout price based on the greater of the partnership’s liquidation value or its value as an ongoing business, calculated as of the date of dissociation. If the partnership and the departing partner cannot agree on a price within 120 days of a written demand, the partnership must pay the estimated buyout price in cash, subject to certain offsets for damages or amounts the departing partner owes the business. These statutory rules were not designed with any particular business in mind, and they can produce a valuation or payment timeline that does not match how your company actually operates or the cash it has on hand.

Practical Issues Employers Should Address When a Partner Exits

Beyond the legal valuation formula, a partner’s departure raises several operational issues that a business owner needs to manage carefully, including:

Determining how the business will fund the buyout without disrupting payroll, vendor payments, or day-to-day operations
Identifying which debts, leases, and personal guarantees the departing partner is tied to, and how those obligations will be handled going forward
Deciding how the client and vendor relationships that the departing partner managed will be transitioned
Reviewing whether the departing partner had access to trade secrets, client lists, or confidential business information that now needs additional protection
Updating banking authorizations, business licenses, and any state filings that list the departing partner as an owner or authorized signer
Considering whether a non-solicitation provision, to the extent enforceable under California law, should apply to
the departing partner’s future dealings with the company’s clients or employees

A partner’s exit that is not handled carefully can leave the remaining owners exposed to disputes over valuation, unpaid obligations, or confusion among clients and staff about who is actually running the company.

We Can Help You Navigate a Partner’s Departure

Lynnette Ariathurai is a California business attorney who has spent decades helping business owners handle ownership changes, including a partner’s exit, buyout, or removal. If your company is facing this situation, or if you want to put a stronger agreement in place before it becomes an issue, our business contracts attorney can help. We work with business owners throughout Fremont, Hayward, and the greater Bay Area, and we would welcome the opportunity to talk through your company’s specific situation. Please contact us today to schedule a confidential consultation.

business partner disputes, business partner walks away, governing agreements

Business legal services in Silicon Valley

Selling Your Practice to a Private Equity-Backed Group?

Private equity-backed groups have become active buyers of medical practices throughout California. These deals can offer real advantages, including liquidity, administrative support, and a path to retirement. They also come with unique structural and regulatory issues that a traditional practice sale to another physician does not raise. Here, our California business lawyer for buying and selling a business outlines what physicians should know before signing on with a private equity-backed buyer.

Selling a Medical Practice to a Private Equity-Backed Group: What to Know

Understand the Deal Structure Before You Negotiate Price

California’s corporate practice of medicine doctrine generally prohibits a non-physician entity from owning a medical practice outright. Private equity-backed buyers typically work around this through a management services organization, or MSO, model. The MSO purchases the practice’s non-clinical assets and provides administrative, billing, and management services under a long-term agreement, while a professional medical corporation owned by a licensed physician continues to hold the clinical practice. The management fee, contract length, termination rights, and control retained by the MSO over staffing and operations all affect the real value and risk of the deal, often more than the headline purchase price.

California Now Requires Advance Notice of Many Health Care Transactions

California’s Office of Health Care Affordability now requires many health care entities to file a notice at least 90 days before closing certain transactions that involve a material change in ownership, control, or governance. OHCA reviews the notice and decides whether to conduct a cost and market impact review before the deal can close. Depending on the size of the practice and the buyer, this notice requirement may apply to a sale involving a private equity-backed group, and missing the filing deadline can delay or jeopardize closing. It is important to determine early in negotiations whether this requirement applies to your transaction.

Protect Your Interests Before You Sign

A private equity buyer’s paperwork is drafted to protect the buyer. Before signing a letter of intent, physicians should review the deal with an eye toward:

How the purchase price is structured, including any portion tied to future performance, earnouts, or continued employment
The length and terms of the physician employment or professional services agreement that follows the sale
Whether restrictive covenants, forfeiture provisions, or non-solicitation clauses are enforceable under California law
Representations, warranties, and indemnification obligations tied to prior billing, coding, and compliance practices
Whether any required regulatory notices or filings, including an OHCA notice, apply to the transaction

Physicians who negotiate these terms early, rather than after a letter of intent is signed, generally retain far more leverage over price and post-closing control.

Contact Our Business Lawyer for Medical Practices Today

Lynnette Ariathurai is a California business attorney who advises medical practices on sales, mergers, and acquisitions throughout the Bay Area. If you are considering selling your medical practice to a private equity-backed group, our business attorney can help you evaluate the deal. Please do not hesitate to contact us today for a confidential consultation.

California medical practice law, medical practice legal advice, selling medical practice, selling to private equity-backed group

If the Physician at a Solo Medical Practice Becomes Disabled or Dies Unexpectedly, What’s Next?

Running a solo medical practice in California means the entire business often depends on one licensed professional. When that physician becomes suddenly disabled or passes away, the practice does not stop being subject to state law. Family members, staff, and patients can be left scrambling if there is no plan in place. Here, our California business lawyer for medical practices explains what typically happens to a solo practice after an unexpected disability or death, and why advance planning matters so much.

What Happens to a Solo Medical Practice When the Physician Becomes Disabled or Dies Unexpectedly?

The Professional Corporation Rules Do Not Pause for a Crisis

Most solo physicians in California operate through a professional medical corporation. State law places strict limits on who may hold shares in that corporation. If the sole shareholder becomes disqualified from practicing medicine due to disability, or dies, the shares generally must be transferred to a licensed physician within a fixed window under California law. If that transfer does not happen in time, the corporation’s certificate of registration can be suspended or revoked. That is a serious problem for a business that may still have staff, leases, and active patients depending on it.

Patients, Records, and Operations Do Not Manage Themselves

A solo practice does not have a co-owner to step in and keep the lights on. Someone needs authority to access bank accounts, pay staff, maintain the office lease, and most importantly arrange continuity of care for patients. Medical records must be protected and made available to patients and any new treating physician. Billing, payer credentialing, and malpractice coverage also need attention almost immediately, since gaps in any of these areas can create liability that outlives the physician’s ability to practice.

Why a Succession Plan Should Be in Place Before a Crisis Hits

A written plan drafted while the physician is healthy and available is far more effective than improvising during a medical emergency. A solid plan for a solo practice generally addresses:

A durable power of attorney authorizing a trusted person to manage business and financial matters if the physician becomes incapacitated
A designated licensed physician, locum tenens arrangement, or covering practice that can step in to treat patients on short notice
Clear instructions for who has access to accounts, payroll systems, and the electronic health record
A buy-sell or asset purchase arrangement identifying who may acquire the practice, and on what terms, if the physician cannot return
Updated estate planning documents that address the professional corporation shares specifically, not just personal assets

Building this plan often requires coordinating an estate planning attorney, an accountant, and a business attorney familiar with medical practice structures, since the professional corporation rules add a layer that most standard estate plans do not address.

Contact Our Business Lawyer for Medical Practices Today

Lynnette Ariathurai is a California business attorney who works with solo and group medical practices throughout the Bay Area. If you have questions about protecting your practice against the unexpected, our business succession planning attorney can help you put a plan in place. We’ll answer the question: What Happens to a Solo Medical Practice When the Physician Becomes Disabled or Dies Unexpectedly? Please do not hesitate to contact us today for a confidential consultation.

California healthcare practice law, medical practice legal advice

How California Medical Practices can Protect Themselves Without a Non-Compete

Employee non-compete agreements are highly disfavored in California. Indeed, state law (California Business and Professions Code § 16600) holds that non-compete agreements are broadly void, invalid, and unenforceable. For the owners of group medical practices, it is generally impermissible to use a non-compete for a physician. However, there are some alternative options available. Here, our Fremont business contracts lawyer provides an overview of the key things to know about how to protect your practice when you cannot use a non-compete agreement for a physician in California.

Physician Non-Compete Alternatives: Protecting Your Practice When You Can’t Use a Non-Compete

A Deeper Overview of the Law: California Prohibition on Non-Compete Agreements

California takes one of the nation’s strictest approaches to employee non-compete agreements. Business and Professions Code § 16600 provides that, except for narrow statutory exceptions, “every contract” restraining a person from engaging in a lawful profession, trade, or business is void. For physician employment agreements, that rule is especially important. A medical group generally cannot prevent a departing physician from continuing to practice medicine, opening a competing office, joining another practice, or treating patients in the same geographic market.

Note: California’s 2024 amendments made the rule even stronger. Section 16600 now requires broad construction of the statute and specifically confirms that employment non-competes are void no matter how narrowly tailored unless a statutory exception applies.

Know the (Narrow) Exception to the Non-Compete Restriction

The main business-sale exception is found in Business and Professions Code § 16601. A physician-owner who sells goodwill, equity, or substantially all operating assets of a practice may agree to a geographically limited restraint connected to that sale. With that being said, the exception is narrow and should not be treated as a workaround for ordinary physician employment.

How to Protect Your Practice: Physician Non-Compete Alternatives in California

A medical practice still has legitimate ways to protect its business. The key is to protect specific business assets without restraining a physician’s lawful practice of medicine. Here are some of the alternatives to physician non-competes that can help to protect your medical practice in California:

Strong confidentiality/trade secret provisions: A practice can prohibit misuse of confidential business information. That may include payer contracts, fee schedules, referral-source strategy, internal compensation data, staffing information, marketing plans, vendor terms, credentialing files, and non-public operational data.
Comprehensive protection of patient records: A departing physician may have professional and ethical duties related to continuity of care, but patient charts, scheduling data, billing records, portal access, and practice management systems belong to the practice.
Very carefully drafted non-solicitation agreements: California courts are skeptical of employee and customer non-solicitation provisions when they operate like restraints on competition. However, certain non-solicitation clauses may be viable.
Reasonable repayment and training-cost provisions: A group medical practice may want to recover signing bonuses, relocation payments, advanced compensation, malpractice tail contributions, or training expenses if a physician leaves early. Beginning 1/1/2026, California has placed limitations on employers’ ability to recover such sums when an employee leaves. Therefore, these provisions should be reviewed by an attorney to ensure compliance. Also, these provisions should be reasonable, clearly documented, and structured as repayment of identifiable benefits rather than a penalty for competition.

Contact Our California Business Lawyer for Physician Practices Today

Lynnette Ariathurai is a California business attorney who works with group medical practices. If you have any questions about the alternatives to non-compete for physicians in California, please do not hesitate to contact us today for a confidential consultation. We provide business law services to medical practices throughout the Bay Area.

California non-compete law, medical practice legal advice, physician non-compete

Mergers: Best Practices for Combining Medical Practices in California

Are you preparing to combine two established medical practices in California? Mergers can be complicated. A proactive, detail-focused approach is a must. Lynnette Ariathurai is a business lawyer who has the knowledge and experience needed to help professional practices navigate transitions. Here, our California attorney for buying and selling a business highlights key things to know about medical practice mergers.

Medical Practice Mergers: Combining Two Established Practices in California

You Must Confirm the Combined Practices Meet California Legal Requirements

It is crucial that you pay careful attention to our state’s requirements for structuring a group medical practice. California medical practices generally cannot be operated through an ordinary business entity if practicing medicine. The structure must account for the Moscone-Knox Professional Corporation Act, the Medical Practice Act, and California’s corporate practice of medicine doctrine. In many cases, the operating vehicle will be a professional medical corporation owned and controlled by licensed physicians.

Conduct Comprehensive Health Care Specific Due Diligence

Due diligence is an absolute requirement with mergers and acquisitions. Standard business due diligence is not enough for a medical practice merger. Among other things, the parties should review corporate records, ownership ledgers, shareholder agreements, employment contracts, independent contractor arrangements, payer agreements, provider enrollment files, leases, equipment financing, malpractice coverage, billing practices, accounts receivable, patient credit balances, HIPAA policies, referral relationships, and any prior audits or board complaints.

Put a Priority on Patients: Medical Records, Continuity of Care, and More

Patients should always come first. A merger can disrupt patient care if medical records and open treatment issues are not handled carefully. Among other things, the agreement should state who will maintain custody of records, how EHR access will be transferred, how patients will be notified, how pending lab results and referrals will be monitored, and how records requests will be processed after closing. California physicians must also account for medical record retention obligations and patient access rights.

Make Sure that Finances are Handled Properly (Cash-Flow Matters)

A merged practice in California may face serious cash-flow problems if payer contracts, provider numbers, credentialing, billing addresses, tax identification numbers, and reassignment rules are not coordinated in advance. The parties should determine whether contracts can be assigned, whether new enrollments are required, whether Medicare or Medi-Cal notices are triggered, and whether commercial payers will treat the transaction as a change of ownership.

Put Strong, Well-Drafted Governance Documents in Place for Post-Merger

Once two established practices combine, informal understandings are dangerous. The shareholder agreement, bylaws, employment agreements, compensation plan, and buy-sell provisions should address voting rights, management authority, productivity expectations, call obligations, expense allocation, profit distributions, deadlock procedures, physician departures, disability, retirement, termination for cause, and mandatory repurchase rights.

Contact Our California Business Lawyer for Group Medical Practices Today

Lynnette Ariathurai is a California business attorney with extensive experience working with medical practices. If you have any specific questions about medical practice mergers, including combining two established medical practices in California, we can help. Please do not hesitate to contact us today for a confidential consultation. With an office in Fremont, we handle business law issues for medical practices throughout the San Francisco Bay Area.

medical practice legal advice, Merging physician practices

Medical Practice Buy-Ins: How to Bring an Associate Physician in as a Partner

Medical practice buy-ins are notoriously complex. If you are preparing to bring in an associate physician as a partner in your practice, it is imperative that you ensure that everything is done properly. An associate physician can make a great partner. The right approach will protect your business interests. In this article, our Fremont business attorney for employers provides an overview of medical practice buy-ins and how to bring in an associate physician as a partner in a group medical practice in California.

Know the California Ownership Rules Before Offering Equity

There are specific rules and regulations for the ownership of medical practices in California. A medical practice buy-in in the Bay Area must account for our state’s strict rules on professional medical corporations and the corporate practice of medicine. A general business investor cannot simply buy into a medical practice and share control over clinical operations.

California Corporations Code § 13401.5 limits who may own shares, serve as officers, serve as directors, or work as professional employees in certain professional corporations. For a professional medical corporation, licensed physicians must remain in control. A practice that brings in an associate physician should confirm licensure, ownership eligibility, voting rights, and transfer restrictions before discussing price.

You Need Value the Medical Practice With More than Near-Term Revenue

Price matters for any business purchase. Whether it makes sense for you to allow an associate physician to become a partner depends on the prices. The buy-in price should reflect the actual economics of the California medical practice. A key point to remember is that the near-term revenue alone rarely tells the full story. With that in mind, you should be prepared to review collections, payer mix, physician compensation, accounts receivable, equipment, lease obligations, staff costs, malpractice history, goodwill, and expected future profitability.

Medical Practices Should Use a Written Buy-In Agreement

A handshake deal is not enough for a physician buy-in. The agreement should state the purchase price, payment schedule, interest rate if financed, consequences of default, tax treatment, and whether payments come from personal funds, reduced compensation, or future distributions. California medical practices should also coordinate the buy-in agreement with the shareholder agreement, bylaws, employment agreement, and any lender or landlord consent requirements.

Medical Practice Governance Must Be Clearly Specified Before the Relationship Changes

A strong associate physician does not automatically become a good business partner. Before closing the buy-in, the practice should define governance rights with precision. The documents should address voting thresholds, management authority, hiring decisions, compensation formulas, call coverage, admission of future partners, debt approval, expansion plans, and major capital purchases. Clinical authority and business authority should also be separated where appropriate. In California, medical judgment must remain with licensed physicians. Still, not every physician-owner needs equal authority over every business decision.

You Need a Comprehensive Plan for Exit, Disability, Death, and Termination

Finally, a buy-in by an associate doctor for a group medical practice in California should always include a buy-sell structure. The associate may leave, lose a license, become disabled, retire, die, or be terminated for cause. The practice needs a clear repurchase right for each scenario. The agreement should state how shares are valued, when payment must be made, whether discounts apply, and whether restrictive covenants or patient-transition duties apply.

Contact Our Bay Area Business Lawyer for Medical Practices Today

Lynnette Ariathurai is a California business attorney with extensive experience working with medical practices. If you have any questions about how to bring in an associate physician to a medical practice as a partner, we can help. Please do not hesitate to contact us today for a completely confidential case review. Our firm provides business law services to medical practices throughout the Bay Area.

business planning, growing a medical practice, healthcare agency buy-ins

Hiring a New Physician: Employment Agreements, Bonuses, etc. in California

Are you a partner in a medical practice? You may be considering hiring a new physician to join the practice. It can be a complicated process in California. There are a number of different considerations that business owners need to consider and address, including employment agreement, compensation terms, and ownership structure. Here, our California business lawyer for employers highlights the key things to know about hiring a new physician to join a group medical practice in the Bay Area.

You Should Start With a Physician-Specific Employment Agreement

California is an at-will employment law state. Medical practices are not required to use employment contracts to hire employees. With that being said, a comprehensive, professionally-drafted employment agreement is always recommended when hiring a new physician for your group medical practice. The contract should be tailored to physicians. A generic employee offer letter usually leaves too much unresolved. The agreement should identify the physician’s title, clinical duties, schedule, call expectations, supervision structure, administrative obligations, patient documentation standards, and compliance responsibilities. It should also address licensure, board certification, DEA registration, medical staff privileges, malpractice coverage, and participation in Medicare, Medi-Cal, and private payer networks.

Beware of non-compete agreements: California sharply limits restrictive covenants. Business and Professions Code § 16600 generally voids contracts that restrain a person from engaging in a lawful profession, trade, or business. In other words, non-compete should generally be avoided.

Medical Practices Should Carefully Define Compensation, Bonuses, and Productivity

Physician compensation should be clear before employment begins. Along with other things, the employment agreement should state base salary, bonus eligibility, productivity targets, collection thresholds, quality metrics, and payment timing. If the practice uses a productivity bonus tied to collections, relative value units (RVUs), profit sharing, or new patient volume, the formula must be precise.

Know the law: California Labor Code § 2751 requires written commission agreements when an employee’s pay involves commissions.

Ownership Expectations Should Be Addressed Upfront

Many associate physicians join a group practice with an expectation that partnership may follow. The employment agreement should avoid vague promises. If ownership may be offered later, the agreement should describe the process without guaranteeing admission as a partner. The practice can require minimum tenure, productivity levels, cultural fit, licensure compliance, board approval, capital contribution, or a separate buy-in agreement.

Medical Practices Can Benefit With a Plan for Termination, Transition, and Risk Management

The agreement should explain how the relationship can end. Termination provisions should address without-cause notice, for-cause termination, loss of license, exclusion from federal health care programs, loss of malpractice coverage, substance impairment issues, patient safety concerns, and failure to maintain hospital privileges or payer credentials. As a general matter, the contract should also state things like how compensation, accrued bonuses, benefits, records, equipment, and patient handoff duties are handled at separation. Malpractice coverage deserves special attention. If the practice uses claims-made coverage, the agreement should specify who pays for tail coverage after termination.

We Provide Business Law Services to Medical Practices in California

Lynnette Ariathurai is a California business lawyer who works directly with employers, including professional practices. If you have any questions about hiring a new physician for a medical practice, please do not hesitate to contact us today. With an office in Fremont, we work with medical practices throughout the Bay Area.

business planning, healthcare agencies, hiring a doctor, medical practice hiring