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Business
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3/9/2011
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Thinking about selling your pharmacy business?
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When it comes to selling your pharmacy business there are various pitfalls to watch out for and certain matters to be considered in advance to ensure that the sale proceeds smoothly and to your best advantage. Jennifer Packer, of Charles Russell LLP, outlines some of the key issues to consider...
Form of sale
If your pharmacy operates as a corporate business (for example a limited company), you have a choice as to whether to sell the shares in your company or the assets of the company’s business. There are material tax differences in the treatment of each type of disposal and early advice should be taken from your professional advisers. The choice of disposal is also likely to impact on the work required to deal with the sale. When selling the shares in a pharmacy company, there would not normally be a change in the operator of the pharmacy business (merely a change in ownership of that operator). As such, the logistical steps referred to below (associated with an asset sale) will not normally feature. However, in a share sale there will be greater focus (from the purchaser) upon the historic trading, financial and tax position of the company (since the purchaser will inherit any historic liabilities). Where one of the selling shareholders is the company’s superintendent pharmacist and is not intending to continue in that role after completion of sale, it is important to remember to give notice of resignation to the General Pharmaceutical Council on completion.
Logistical considerations on an asset sale
If your sale is to proceed by way of an asset sale (which would be the case if you operate your pharmacy as a sole trader or pharmacy partnership) then there will be logistical requirements to consider. Completion of the sale will involve a change of operator of the pharmacy business and PCT consent for change of ownership of the NHS contract will be required (prior to the sale completing). In the event that your purchaser wishes to relocate your pharmacy on completion of purchase then, additionally, a relocation consent will need to be obtained from the PCT. It should be remembered that relocation consent is personal to the contract holder at the time of application. Careful thought should therefore be given to timing so as to ensure that you do not (as seller) inherit any liability for the operation of the business after its relocation but prior to the PCT reflecting the change of ownership.
If your pharmacy operates from leasehold premises, then it is likely that prior written consent from your landlord will be needed to transfer the lease to the purchaser. That process can take some time and this should be factored into the intended timescale for completing the sale.
Contracts
Additionally, certain key contracts held by the business may need to be formally transferred (for example, contracts for the use of IT systems). Furthermore, with an asset sale, it is likely that there will be a need (as a matter of employment law) to notify (and in some situations consult) with your employees a reasonable time ahead of the sale. As a matter of law, the employees of the business are likely to have a right to transfer their employment to the purchaser at completion. In the event that not all of the staff are intended to be included with the business on sale, legal advice should be
taken at an early stage.
Leasehold premises
Whether your sale is to proceed as an asset sale or the sale of shares in a pharmacy company, if the business operates from leasehold premises then early consideration should be given to whether the terms of your lease will be satisfactory to a purchaser (and its lender). In the event that you only have a few years unexpired on the remainder of your lease, a purchaser may ask for a commitment to be obtained from the landlord to extend the remaining term of the lease (notwithstanding that most pharmacy leases enjoy a statutory right to renewal upon expiry). It is recommended that you ask your solicitor to undertake an early review of the lease to identify any potential issues that may arise.
Mortgages and personal guarantees
Whether you are selling a pharmacy company or selling the assets of a pharmacy business, if there are borrowings over the business that are secured by a mortgage over the business and its assets, it is likely that a purchaser will require that the mortgage be repaid on completion of the sale. It is recommended that a mortgage redemption figure is obtained at an early stage. It is also important to ensure that any personal guarantees given by the directors or shareholders of the company are released (as far as possible) prior to the sale completing.
For further information, Charles Russell LLP’s free guide to Buying and Selling Pharmacy Businesses is available to download from http://www.charlesrussell.co.uk/pharmacy. Jennifer Packer is a solicitor in the Pharmacy Transactions Team at Charles Russell LLP and can be contacted at Jennifer.packer@charlesrussell.co.uk
This information has been prepared by Charles Russell LLP as a general guide only and does not constitute advice on any specific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of this information. Charles Russell LLP is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are members of the Law Society. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide.
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