A practical guide to the documents, provisions, and decisions that make or break a practice sale

The letter of intent gets all the attention. But the purchase contract is where deals actually succeed or fail.

A well-drafted purchase contract protects both parties, reflects the specific economics of the deal, and eliminates the ambiguity that causes disputes months or years after closing. A poorly drafted one — or one assembled from a generic template that wasn't built for the sale of a medical practice — can expose the seller to unexpected tax liability, ongoing legal risk, and provisions that are simply unenforceable.

What follows is a detailed walkthrough of the key components that should appear in a medical practice purchase contract. It is not a substitute for a healthcare attorney — it is a map of the terrain so that you know what questions to ask and what to insist on.

1. The First Decision: Asset Purchase or Entity Purchase?

Before any contract can be drafted, you need to answer one foundational question: is the buyer purchasing your business entity, or are they purchasing the assets of your business?

These are fundamentally different transactions, and they require fundamentally different contracts.

Entity (Company) Purchase

In an entity purchase, the buyer acquires the legal entity itself — the LLC, PC, or corporation — including everything it owns, owes, and is liable for. The business continues operating under the same legal structure; ownership simply changes hands.

Entity purchases are less common in medical practice sales for a straightforward reason: most buyers don't want to inherit the seller's liabilities. Every malpractice claim, unpaid vendor invoice, outstanding loan, or regulatory issue that exists inside the entity becomes the buyer's problem. This is a significant deterrent, and it explains why the majority of medical practice sales today are structured as asset purchases.

Asset Purchase (the more common structure)

In an asset purchase, the buyer acquires specific assets of the practice — equipment, patient records, goodwill, intellectual property, staff contracts — but does not acquire the legal entity itself. The seller's entity continues to exist after the sale; it simply no longer holds those assets.

Asset purchases require an Asset Purchase Agreement (APA), which is more complex than a simple entity sale agreement but gives both parties more control over exactly what is and isn't changing hands. The rest of this guide focuses primarily on the asset purchase structure, as it is the framework most practitioners will use.

2. Payment Structure: How Is the Buyer Paying?

The purchase price matters. How it's paid matters just as much — and it shapes what documents need to be included in or attached to the purchase agreement.

All-Cash at Closing

The simplest structure: the buyer pays the full agreed price at closing, either from personal funds, an SBA loan, or another financing source. The seller receives the full amount and has no ongoing financial relationship with the buyer after closing. This is the cleanest outcome for sellers and the one to aim for when possible.

Seller Financing

In many practice sales — particularly smaller practices, or situations where the buyer cannot qualify for a commercial loan — the seller holds a loan for part or all of the purchase price. The buyer makes monthly payments to the seller over an agreed period.

If you are offering seller financing, your contract package must include:

• Promissory Note: The buyer's formal promise to repay, specifying the principal amount, interest rate, payment schedule, and consequences of default.

• Security Agreement: Grants the seller a security interest in the assets being purchased — meaning if the buyer defaults, the seller has a legal mechanism to recover the assets.

• Amortization Schedule: A complete payment-by-payment breakdown showing principal, interest, and remaining balance at each interval.

A critical compliance point: If you are providing seller financing, federal tax law requires you to charge interest. Specifically, the IRS mandates a minimum interest rate based on the Applicable Federal Rate (AFR) — a rate it publishes monthly, which varies by loan term (short-term, mid-term, or long-term).

If you charge no interest — or a rate below the AFR — the IRS can and regularly does impute interest, meaning it treats a portion of your principal payments as interest income and taxes you accordingly, even if you never actually received that interest. This is a common and costly mistake in seller-financed deals.

Earnouts

In some deals — particularly where the practice's value is tied heavily to the departing physician's personal relationships — part of the purchase price may be structured as an earnout: a future payment contingent on the practice hitting certain revenue or patient retention targets after closing.

Earnouts can be a useful tool for bridging a valuation gap, but they introduce complexity and risk for sellers. The contract must specify the performance metrics, the measurement period, reporting obligations, and what happens if there is a dispute about whether targets were hit. Earnouts that are not carefully defined become litigation waiting to happen.

3. The Asset Allocation Table: The Tax Battle Inside the Deal

If you are doing an asset purchase, one of the most consequential — and most negotiated — components of the contract is the Asset Allocation Table.

The IRS requires that the purchase price in an asset sale be allocated across specific asset classes. That allocation determines how the transaction is taxed for both the buyer and the seller. Because the tax implications run in opposite directions for each party, the allocation is almost always a negotiating point.

The Asset Classes

The primary categories relevant to a medical practice sale are:

Why This Is a Negotiating Point

As a seller, you want as much of the purchase price as possible allocated to goodwill. Goodwill is taxed at capital gains rates — currently 15–20% for most sellers, compared to ordinary income rates that can reach 37% or higher. The difference on a $500,000 allocation can easily exceed $80,000 in additional taxes.

Your buyer wants the opposite. They have to depreciate goodwill over 15 years. Tangible assets, on the other hand, can often be written off much faster under current depreciation rules — in some cases immediately under bonus depreciation provisions. So the buyer has a strong incentive to push as much value as possible into tangibles.

This tension is real and it's normal. It doesn't mean the deal falls apart — it means you need to negotiate the allocation table as carefully as you negotiate the headline purchase price. A well-advised seller who protects the goodwill allocation can walk away with significantly more after-tax proceeds than one who lets the buyer's accountant dictate the table.

4. The Asset List

The asset purchase agreement must include a complete, itemized list of every asset being transferred from seller to buyer. This is not optional and it is not a formality — it defines exactly what the buyer is getting, protects the seller from future claims about assets that weren't included, and forms the basis for the Asset Allocation Table.

A thorough asset list typically includes:

• All clinical and office equipment (with serial numbers where possible)

• Furniture and fixtures

• Medical supplies and inventory on hand at closing (often valued separately)

• Patient records and charts (subject to HIPAA transfer requirements)

• Software licenses and subscriptions being transferred

• Phone numbers, domain names, social media accounts, and online profiles

• The practice's DBA name, if applicable

• Any proprietary documents, intake forms, protocols, or systems

Equally important: a list of assets that are specifically excluded from the sale. If you're keeping your personal computer, your personal medical bag, certain equipment you plan to use in another capacity, or anything else, it must be listed as excluded. Anything not explicitly excluded may be presumed to be included.

5. Non-Compete, Non-Solicitation, and Non-Disparagement Clauses

Nearly every practice sale includes a non-compete agreement. Even if you are retiring, even if you are moving out of state, even if the idea of competing with the buyer has never crossed your mind — most buyers will require one, and most sellers agree to it.

Non-Compete

A non-compete provision prohibits you from opening or working in a competing practice within a defined geographic area for a defined period of time. Typical parameters in medical practice sales are one to five years and a radius of 5–25 miles, though this varies considerably by specialty, market, and state law.

A few important points:

• Enforceability varies dramatically by state. Some states (California, most notably) do not enforce non-competes against physicians at all. Others enforce them strictly. This matters for the contract language and for how much weight you should give to negotiating the terms.

• Even where non-competes are not fully enforceable, buyers often want them included as a statement of good faith and to complicate any potential competition — even if enforcement would ultimately fail in court.

• The value assigned to the non-compete in the Asset Allocation Table has tax implications for both parties (see Section 3 above).

Non-Solicitation

Separate from the non-compete, a non-solicitation clause prohibits you from actively recruiting patients or staff from the practice after closing. This is generally narrower and more enforceable than a non-compete — courts are more willing to uphold non-solicitation provisions even in states skeptical of broader non-competes.

Non-Disparagement

A non-disparagement clause prevents either party from making negative public statements about the other after closing. This protects the buyer's reputation with your patient base and staff, and it protects you from a buyer who might be tempted to blame you publicly if the transition doesn't go smoothly.

6. Representations and Warranties

Representations and warranties (often called "reps and warranties") are formal statements that each party makes about themselves and the transaction, on which the other party relies in agreeing to close.

Seller Representations Typically Include:

• That you have legal authority to sell the assets

• That the financial statements you've provided are accurate and complete

• That there are no undisclosed liabilities, lawsuits, regulatory proceedings, or liens against the assets

• That you are in compliance with applicable healthcare regulations (HIPAA, state licensure, billing practices)

• That the assets are in the condition represented

• That no key contracts (leases, payer agreements, vendor relationships) will be materially affected by the sale

Buyer Representations Typically Include:

• That the buyer has the legal authority and financial capacity to complete the purchase

• That the buyer holds (or will hold at closing) the necessary licenses to operate the practice

• That the buyer has not made misrepresentations in any financing applications related to the purchase

Reps and warranties are important because they create legal liability if they turn out to be false. A seller who warrants that there are no outstanding malpractice claims and one surfaces post-closing has made a false representation — and the buyer has a legal claim for damages. This is why thorough due diligence on both sides, before the contract is signed, is essential.

Many purchase agreements also include a survival period — typically 12–36 months after closing — during which reps and warranties remain actionable. After that period, a party's ability to bring a claim based on a false representation expires.

7. Intellectual Property and Account Transfers

The transfer of intellectual property and digital assets deserves its own section of the contract. In a modern practice, these assets are often more valuable than the physical equipment — and they are the most frequently overlooked.

The contract should explicitly list and address the transfer of:

• Software licenses — EMR/EHR systems, billing software, scheduling platforms. Note that many software licenses are non-transferable; the buyer may need to establish their own account, and the seller may need to provide data exports in a standard format.

• The practice's website, domain name(s), and hosting accounts

• Social media accounts (Facebook, Instagram, Google Business Profile, Healthgrades, Zocdoc, etc.)

• The practice's phone numbers — including how they will be redirected or transferred

• The practice's DBA (doing business as) name or trade name, if it will be continuing under the same name

• Any proprietary clinical materials, intake forms, or patient education resources

• Online review profiles — while reviews themselves cannot be transferred, access to response management often can be

Phone numbers and Google Business Profiles deserve special attention. A patient who searches for the practice by name or calls the old number should reach the buyer, not a disconnected line. The mechanics of these transfers should be agreed to in the contract and executed at or before closing.

8. The Lease

If the practice operates out of a leased space — which is most practices — the status of the lease is one of the most important contingencies in the entire deal.

The purchase agreement typically makes the closing contingent on one of the following:

• Assignment of the existing lease: The landlord agrees to transfer the current lease to the buyer on the same (or negotiated) terms.

• New lease negotiated directly with the landlord: The buyer negotiates a new lease independently, and the seller is released from the existing one.

• Sublease arrangement: Less common and generally less favorable, but sometimes used as a bridge.

The critical mistake is allowing the deal to close before the lease situation is resolved. A buyer who takes possession of the practice's assets but has no right to occupy the space is in an impossible position. Make the lease resolution an explicit condition of closing — not an item to be worked out afterward.

Also worth addressing in the contract: what happens to the existing lease if the deal falls through before closing. If the seller has already begun the process of assigning the lease and the buyer walks away, the seller needs to be able to revert cleanly.

9. Employees

What happens to your staff is both a legal question and a human one. The purchase agreement needs to address it clearly.

In an asset purchase, employees do not automatically transfer to the buyer — they are technically terminated by the seller's entity at closing and may be offered employment by the buyer. This distinction matters for several reasons:

• WARN Act obligations: If the practice employs 100 or more people, federal law may require advance notice of mass layoffs. This is rarely triggered in a typical practice sale, but worth confirming with your attorney.

• Accrued vacation and PTO: Does the seller pay out accrued leave, or does the buyer assume the liability? This must be specified.

• Benefits continuation: COBRA notices, health insurance transition, and retirement plan handling all have legal requirements tied to the employment termination event.

• Which employees are being offered positions: If the buyer does not intend to retain all staff, the contract should reflect this — both to manage expectations and to protect the seller from claims that the transaction was structured to avoid employment obligations.

If there are key employees whose retention is critical to the practice's value — a long-tenured office manager, a nurse practitioner who has strong patient relationships — their continued employment may itself be a condition of closing, or at minimum a representation the buyer makes.

10. Additional Documents in an Asset Purchase

A fully executed asset purchase will typically include several documents beyond the main APA itself. These are often attached as exhibits or executed simultaneously at closing:

Bill of Sale

The formal document that transfers ownership of the tangible assets from seller to buyer. While the APA governs the terms of the transaction, the Bill of Sale is the instrument that legally effects the transfer of personal property.

Statement Regarding Absence of Creditors

Also called a Bulk Sale Affidavit in some states, this is the seller's sworn statement that there are no outstanding creditors who have a claim against the assets being sold. Many states have bulk sale laws that require creditors to be notified of an asset sale; this document is either part of that compliance or a representation that such compliance is not required. The purpose is to protect the buyer from acquiring assets that are subject to the seller's unknown liens or debts.

Assignment and Assumption Agreement

This document formally assigns specific contracts, leases, and obligations from the seller to the buyer, and the buyer formally assumes them. If the buyer is taking over the office lease, certain vendor agreements, or payer contracts, they go here. It also typically specifies which liabilities the buyer is not assuming — an important protection for the seller.

11. Accounts Receivable and Outstanding Payables

One of the most practically important questions in any practice sale is what happens to money that was earned before closing but hasn't been collected yet — and to bills that were incurred before closing but haven't been paid.

Accounts Receivable (AR)

In most asset purchase agreements, the seller retains their outstanding AR. The practice has already provided the services and billed for them; the seller is entitled to collect that money even after the sale. The buyer has no obligation to chase down those receivables and no right to keep them if they come in after closing.

Practically, this means the contract needs to address:

• How payments received by the new owner that belong to the old AR will be forwarded to the seller

• Whether the buyer will assist with AR collection on behalf of the seller, and if so, whether there is a fee for doing so

• A cutoff date — typically the closing date — that clearly defines which receivables belong to whom

In entity (company) sales, the AR stays with the entity and therefore transfers to the buyer along with everything else — which is one reason buyers prefer asset purchases.

Outstanding Payables

Similarly, bills incurred by the seller before closing are the seller's responsibility. Vendor invoices, outstanding lab bills, lease payments for the month of closing — the contract should be explicit that the seller is responsible for all obligations incurred prior to closing, and the buyer is responsible for those incurred after.

This liability demarcation is standard but it must be clearly written. Ambiguity here is a common source of post-closing disputes.

12. Conditions to Closing

The purchase agreement should specify the conditions that must be satisfied before either party is obligated to close. These conditions protect both sides from being forced to complete a deal that is fundamentally different from what they agreed to.

Common conditions to closing include:

• Buyer obtaining financing: If the deal depends on an SBA loan or other financing, closing is contingent on final loan approval. The contract should specify a deadline by which financing must be confirmed.

• Lease assignment or new lease execution: As discussed above, the buyer must have secured their right to occupy the practice space.

• Regulatory approvals: In some transactions — particularly those involving Medicaid or Medicare participation — certain regulatory filings or approvals may need to precede closing.

• Buyer licensure: The buyer must hold (or have applied for) the appropriate state license to practice.

• Completion of due diligence to the buyer's satisfaction: The buyer should have a defined period to review financial records, patient charts (in compliance with HIPAA), equipment, and contracts — with a right to terminate if due diligence reveals material undisclosed issues.

• No material adverse change: If something significant changes between signing and closing — a key physician departs, a payer terminates the contract, a lawsuit is filed — either party may have the right to terminate.

The contract should also specify what happens to any earnest money or deposit if the deal fails to close, and who bears that loss depending on which condition was not met and why.

13. Dispute Resolution

No one enters a purchase agreement expecting to end up in a legal dispute. But disputes happen — over the accuracy of representations, over AR collection, over whether earnout targets were hit, over the condition of equipment at closing. The contract should specify in advance how disputes will be handled.

Key questions to address:

• Jurisdiction and governing law: Which state's law governs the agreement? In which court (or arbitration venue) will disputes be resolved? This matters especially when the buyer and seller are from different states.

• Arbitration vs. litigation: Many practice purchase agreements require disputes to go to binding arbitration rather than court. Arbitration is typically faster and less expensive than litigation, but you waive certain procedural rights, including the right to a jury trial.

• Attorneys' fees: Who pays legal fees if a dispute arises? Some agreements specify that the losing party bears both sides' attorneys' fees (the "English rule"); others specify each party bears their own. This affects how aggressively parties are willing to push disputes.

• Indemnification: The contract should specify each party's obligation to indemnify the other — to cover losses arising from breaches of their representations, warranties, or obligations. Indemnification caps (a maximum dollar amount) and baskets (a minimum threshold before indemnification kicks in) are negotiated points in larger transactions.

14. Training and Patient Notification

The period immediately after closing is often the most fragile moment for the practice's value. Patients who discover the ownership change through a form letter — or worse, by accident — are at risk of leaving. Staff who feel blindsided may resign. A thoughtful transition plan, built into the contract, protects the buyer's investment and the seller's legacy.

Seller Training Obligations

Most purchase agreements require the seller to remain available for a transition period to train the buyer and introduce them to patients, staff, and referral relationships. The contract should specify:

• The duration of the transition period — typically 30 to 90 days, though it varies by practice type and complexity

• The time commitment expected — full-time, part-time, or available on call

• Whether the seller is compensated during this period, and if so, at what rate

• What "training" specifically includes — chart reviews, staff introductions, shadowing, referral partner meetings

Patient Notification

State law varies on what is required when a physician leaves a practice or a practice changes ownership. In most states, patients must be notified of the change and given an opportunity to transfer their records to another provider if they choose. The contract should address:

• Who drafts the patient notification letter

• Who sends it and pays for distribution

• Whether the seller will co-sign the letter (which significantly increases patient retention)

• The timing of the notification relative to closing

The research is clear: patients who receive a warm, personal introduction to the new physician — ideally in writing from the departing physician — have substantially higher retention rates than those who receive a generic form letter or hear about the change secondhand. The contract should create the conditions for that warm handoff, not just technically satisfy the legal notification requirement.

Putting It All Together

A medical practice purchase contract is not a single document. It is a package of agreements — the main APA, supporting documents, and closing exhibits — that together define the entire transaction: what is being sold, for how much, on what terms, with what protections, and with what obligations going forward.

No two contracts are identical, because no two practice sales are identical. The size of the practice, the deal structure, the relationship between buyer and seller, the state in which the practice operates, and dozens of other factors all shape what the contract needs to say.

What is consistent across every good contract is this: it anticipates problems before they happen, it leaves no ambiguity about who is responsible for what, and it gives both parties confidence that the agreement they shook hands on is actually the agreement they signed.

We help sellers navigate this process from valuation through closing. If you have questions about your specific situation — whether you're an asset sale or entity sale, how to structure seller financing, or what your allocation table should look like — we're happy to talk through it with you.

This article is for informational purposes only and does not constitute legal or tax advice. Laws and regulations vary by state and are subject to change. Consult a licensed healthcare attorney and a qualified accountant before drafting or signing any purchase agreement.

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