In ophthalmology, the incoming co-owner almost always purchases an ownership interest from the existing co-owner(s). Selling off some equity is a senior doctor’s means of realizing some tax-favored cash for his ownership. According to Mark Kropiewnicki, JD, LL.M, principal consultant with The Health Care Group, this is also a favorable approach for the associate (incoming co-owner) because the purchase price will be lower when buying from the other member(s) than when buying ownership interest from the practice.

For example, if an associate is becoming an equal shareholder with a sole owner in a practice worth $100,000, the buy-in price need only be $50,000 (taxable as capital gains at worst) if he buys shares from the senior. But he would have to pay $100,000 if buying from the corporation to match the equity share of the senior.

Usually, an associate buys in by paying a fraction of the price up front and making payments annually over a period of 3 to 5 years. The new co-owner should sign a promissory note for the installments payable at a reasonable rate of interest.