Sale of practice - Transfer of practice - Surrender of practice in Germany

What do I need to consider when selling a practice?

If physicians or dentists in wish to sell their practice or shares in a professional practice association (BAG) or a medical care center (MVZ), many legal and tax aspects must be taken into account under german law. The same applies if you wish to share your practice and license with a colleague or transfer it to a medical care center (MVZ). Professional preparation and execution is essential in order to avoid risks, achieve a high purchase price and take advantage of tax privileges.

If you want to buy a (dental) practice in Germany instead of selling it, you will find all the important information on buying a practice here.

Overview: Practice sale and practice disposal under german law

Anyone selling a (dental) practice i Germany is not simply carrying out a corporate transaction. It is usually a matter of giving up a life's work. Of course, the aim is to achieve the highest possible purchase price, or at least a fair one. But more than that, the aim is to ensure that patients continue to receive good care in the future, if possible at the same location. The employees should retain a good and fair job. Some would like to continue treating patients on a part-time basis, but without being further burdened with administrative matters and bureaucracy.

After the surrender of the practice, it should be ensured in all cases that

• no more claims for reimbursement are made against you,
• there are no unexpected tax risks under german tax law
• the purchase price cannot be reduced retroactively, or
• in the worst case, the sale of the practice must even be reversed.

We understand that. Our team protects you from risks and is always at your side during the sale process in Germany. After all, it is not only the day-to-day management and running of a practice that requires tact and years of experience. The sale of a practice also confronts physicians with major challenges. Especially when the proceeds from the sale of the practice play an important role in personal retirementplanning and financial planning, the sale of the medical practice should be planned well in advance.

Many economic, legal and tax aspects must be considered and examined under german law. With professional preparation and structuring of the sales process, liability risks can be avoided and optimal purchase prices achieved. (In common parlance, the terms "practice sale", "practice disposal" and "practice transfer" refer to the same process and are therefore used synonymously here; meanwhile, there are subtle but significant differences at the legal-technical level, but these are irrelevant to the following information).

The time frame for selling a practice in Germany

A distinction must be made in practice handover processes. In some cases, a specific successor is already favored, and he or she may already be employed in the german practice. In other cases, the selection must be made during the transfer process. If, in the former case, it is to be ruled out that the relevant licensing committee will not appoint another successor, the transfer of the practice in Germany should at best be planned several years in advance (and checked from a legal and tax point of view).  

However, even if the succession is undetermined, approximately nine months should be planned until the transfer date. The transfer date should always be the last day of a quarter. It is true that practice handover procedures can often be carried out more quickly in Germany. However, we recommend that you allow enough time and some time buffer for valuation procedures, the processes before the licensing committee, contract negotiations and other preparatory activities, such as coordinating the leasing of the practice property.

Issues relating to german licensing law must be coordinated as part of the drafting of the practice purchase agreement. Support from a certified specialist should be sought for this purpose. The certified specialist for german medical law knows how to deal with admission blocks, rectification procedures and other procedures of admission committees in the context of the contract negotiations and the drafting of the practice purchase agreement under german law. The sale of purely private medical practices is comparatively far less complex. Practice transfers in unrestricted planning areas, e.g. dental practices, are also simpler. These can also be realized somewhat more quickly on a regular basis.

The first steps to handing over a practice in Germany

At the beginning of the process of giving up a practice in Germany, there is - not surprisingly - the decision to part with the practice in the first place. The motives range from relocation to a complete professional reorientation. In the meantime, the practice sellers in Germany usually intend to retire. For this, you need to check with your advisors what sales proceeds can be expected, what tax burdens can be expected and whether this is in line with your personal life planning.

Consequently, determining the horizon of expectation for the net proceeds takes on a key role in early planning. The decision as to whether and when to hand over a practice goes hand in hand with the purchase price expectation. However, sellers in Germany are often not even aware of what their practice is worth.

German business valuation: What is my practice worth?

In order to determine the purchase price in Germany, an expert opinion is often commissioned to evaluate the practice according to recognized principles of business valuation. However, in german practice, the negotiation of the purchase price depends on a very large number of criteria. In addition to the technical valuation, economic risks and opportunities play a role in determining the purchase price, which are not taken into account at all or are insufficiently weighted in many valuations. Thus, numerous value-forming factors must be taken into account:

1. the sales and practice net income of the past years,
2. the current cost structure
3. the patient clientele, in particular the proportion of private patients,
4. the real estate of the practice
5. the practice equipment
6. the location
7. the reputation of the practice,
8. Cooperations and cooperation possibilities,
9. potential synergy effects and profit potential,
10. possibilities for expansion, and much more.

The more professional the appraisal, the more factors are taken into account and weighted appropriately. In Germany, such appraisals are prepared, for example, by independent experts and can be obtained in part from or through (dental) medical associations. Practice brokers and practice outfitters sometimes also prepare value assessments in Germany. The qualitative range is wide and often difficult for laypersons to understand.

For example, the so-called "modified capitalized earnings value method", which is often used by german medical associations, is criticized for focusing too much on practice revenues and little on profit potential. Incidentally, you are hardly making a mistake if you obtain different appraisals and in this way get a feel for the value of your own practice. Ultimately, the german market determines the price anyway. Even the most sophisticated practice valuation is of no use to you if no one is willing to pay the asking price.

The implementation of the sale decision: the search for a successor in Germany

As soon as you have made a decision to sell your practice in Germany and have developed ideas about the date of sale and the purchase price, the next step is to look for a buyer. If you already have someone in mind, who is ideally already a BAG partner or employed, the succession procedure should be prepared.

In german practice, if a successor has not yet been determined, you have the option of renouncing your license directly and applying to the licensing committee for the tender procedure. Alternatively, you can first search for interested parties yourself with a longer lead time.

German succession procedure - or take the succession into your own hands?

If possible, we recommend that you start looking for interested parties before you submit your application in Germany. This increases the possibility that you will receive more suitable applications. It also gives you more scope for important soundings.

In the german post-occupancy procedure, interested parties only learn about the acquisition opportunity at very short notice. Within only four weeks, the decision to buy would have to be made, appointments would have to be made to get to know each other (if necessary, also the practice team) and to visit the german practice. Loans would have to be approved and contract negotiations conducted. Practically only applicants who are already well prepared, have already made a location decision and, incidentally, are not likely to be ill or on vacation during this period come into question.

Consequently, a practice or license in Germany should only be advertised directly if, for personal reasons on the part of the seller, the practice is to be sold as quickly as possible.

How to find suitable interested parties in Germany

The person of the buyer is of paramount importance, not least employees and patients. So how do you find a suitable person? In Germany, you can place an advertisement easily and inexpensively online or in print via the relevant trade journals or medical newspapers. The german regional associations of panel doctors (KV or KZV) also usually maintain practice exchanges. Our office also has access to practice exchanges. Practice mediators and brokers can also be used in Germany; you can read about the advantages and disadvantages here.

Sales exposé in Germany: Start the search - but with a concept!

The search for interested parties should be well prepared in Germany. Interested parties will ask for documents, viewing dates and possible handover times at short notice. In professionally structured sales processes, it makes sense to present prospective buyers with a sales exposé containing all relevant information about the german practice. This speeds up the sales process, as the buyer does not know the relevant economic circumstances of the practice in Germany.

In Germany, it is of paramount importance that, prior to a sales process, the practice's current accounting is prepared in an up-to-date, correct and comprehensible manner for the advisors on the buyer's side. The practice's tax advisor should therefore be involved in the sales process at an early stage. Economic "figures" in particular should be well prepared, because you are regularly required to guarantee the correctness of the information later on in the contract.

The due diligence audit under german law

Due diligence (abbreviated to "DD") initially means "due care", but in the context of a company purchase in Germany it refers to a professional examination of the object of purchase from a legal, economic and/or tax point of view.

In Germany, a due diligence process is regularly initiated by the buyer in order to be able to optimally assess the object of purchase and to identify risks in the best possible way. For this purpose, legal, business and tax advisors are engaged. Under german law, a due diligence can only be carried out with the cooperation of the seller side.

Is due diligence necessary when selling a practice in Germany?

A due diligence review of your practice is not mandatory at first, but it is quite common in german practice. Larger practice units and medical care centers (MVZs) in particular are subject to in-depth review. This is initially inconvenient for some sellers. Within a short period of time, a great deal of documentation and information has to be disclosed, without it being clear whether a contract will be concluded as a result. Therefore, many practice sellers in Germany ask themselves whether it is necessary to conduct a DD.

But the buying side has a legitimate interest in investigating the practice. This is because prospective buyers do not know the german practice and cannot assess it offhand, as one might do a test drive when buying a car (on information asymmetry, see also below on warranties). We therefore recommend setting up for this early and cooperating fully. Even if no DD is to be performed, you will certainly be asked to provide documents that you should have ready:

1. Revenue Surplus Accounts (EÜR) for the last three years,
2. Fixed asset register of business assets (practice equipment, devices, furniture),
3. KV statements for the last three years,
4. employment contracts of the employees and
5. Rental agreement for the practice premises.

Attention. Caution with data protection under german law

In Germany, the relevant documents are sensitive company secrets. You can and should disclose them upon request, but only in return for a signed non-disclosure agreement (NDA). You should attach great importance to the confidentiality of the documents disclosed. In german practice, it must be precisely defined who can access the information.

Ideally, all documents for due diligence are compiled in a physical or digital, password-protected data room for the buyer side. Often in german practice, relevant problems and obstacles are already discovered during the compilation of the documents by the seller's lawyer, which can possibly be eliminated or put into perspective in the run-up to the contract negotiations without having a major impact on the amount of the purchase price.

The backfill procedure before the german admissions committee

It is not you who decides who receives the license, which is the prerequisite for operating your practice, but the licensing committee at the respective Association of Statutory Health Insurance Physicians in Germany (KV or KZV), unless it is a purely private practice.

In the dental sector and in non-restricted planning areas, a formal re-staffing procedure also takes place, but this no longer changes the outcome of the sale. Above all, time must be factored in.

Dependence between the license and the sale of the practice in Germany

In Germany, if agreement is reached with the buyer or seller on the purchase price and the individual aspects of the practice purchase agreement to be regulated, the agreement is concluded subject to a so-called condition precedent of a positive and final selection decision by the responsible licensing committee in favor of the buyer - before the selection decision is made.

First step in german practice: waiver of admission

The seller in Germany first waives the admission in a two-step administrative procedure. In addition, an application is submitted to the admissions committee at the responsible association of SHI-accredited physicians in a separate procedure to fill the vacancy.

In german practice, this is followed by the application of "our" interested party, which we can of course also prepare and submit. In the case of several applications, we will check the quality of the relevant competitors by inspecting the files and, if necessary, submit additional information to the admissions committee in a written statement.

The selection criteria of the german admissions committee

The admissions committee makes its decisions in accordance with specific legal requirements under geman law. Qualifications certainly play a role, but are often not decisive, because the german admissions committee cannot assess which candidate is the "best" in terms of his or her specialization.

From a certain length of medical practice, licensing age and qualification, the applicants are usually treated as equally suitable. Then, if necessary, so-called privileged circumstances are taken into account, for example, if the applicant has previously worked in an underserved area, can fulfill special care needs or is related to you. In the meantime, you can have a limited influence on the chances in the admission procedure; we will be happy to inform you about this.

The meeting of the german admissions committee: The decisive date

Finally, there is the meeting of the admissions committee, to which all applicants are invited in Germany. If you wish, we will be happy to attend this meeting with you. At the end of the meeting, the decision on the replacement will be announced.

Depending on the outcome of the decision, an application for an order of immediate enforceability may be filed in Germany. If necessary, an objection must be lodged if another undesirable candidate has been selected as better. In Germany, this appeal can be filed even if the decision has not yet been served in writing. In second instance, the german appeal committee at the Association of Statutory Health Insurance Physicians decides. This may be followed by social court proceedings in Germany. At every stage of the proceedings, our experts are at your side with their expertise and many years of experience.

Special features of the sale of shares in a BAG or MVZ in Germany

If the selling physician operates a medical practice together with other colleagues as a professional practice association in Germany (BAG, formerly: joint practice; usually in the form of a civil law partnership, GbR), not a physical separable part of the medical practice, but a corporate share in the BAG is transferred to the transferee. The same applies to shares in a german medical care center (MVZ).

From a legal point of view under german law, there is no sale of individual assets (such as inventory, patient base, etc.). Therefore, in Germany, the membership in the partnership is acquired with the partnership share. As a result, individual contracts and legal relationships do not have to be transferred to the purchaser. These remain in the BAG and the entry of the new partner in the BAG does not change the legal relationships of the BAG with third parties.

Prerequisite under german law: Participation of the other shareholders

In Germany, a share transfer requires that the other co-partners of the BAG agree to the sale of shares and the entry of the buyer. In the run-up to the sale of shares, the physician colleagues of the BAG must be involved in the contract negotiations at an early stage. Without their consent, the entry of the buyer is not possible in Germany (so-called transfer restriction). Finally, the articles of association of the BAG or the MVZ must be adapted.

The relationship of the german BAG with third parties

The legal relationships of the german BAG or the MVZ with third parties remain unchanged in the event of a share purchase. This means that the purchaser enters into the german BAG under the existing conditions. The old liabilities - i.e. the debts - of the practice are therefore taken over. Only in the internal relationship special arrangements can be made between the old debts of the BAG, which we also regularly recommend to you in order to prevent disputes. In german practice, this is implemented by means of special indemnity agreements.

Concerns about selling to a german MVZ chain?

In Germany, MVZ chains, i.e. medical care centers (MVZ) with a large number of locations are currently buying up medical and dental practices, in some cases en masse. They may also be making you an offer for your practice. Is this morally questionable? In some cases, international private equity companies are behind the MVZ chains. The target of the investors, most of whom acquire a small hospital in Germany just to obtain the right to set up MVZs, has so far been primarily dental and ophthalmology practices.

Concerns about a "capitalization of the german health care system

Critics believe that this is above all a capitalization of the german healthcare system at the expense of patients. Investigative journalism has already uncovered cases in which german physicians were encouraged to bill for certain services in a dubious manner and even to provide services that were not medically indicated. MVZ chains have long since become a political issue in Germany.

Beware of the black sheep among german MVZ chains

The development must indeed be seen as ambivalent. There is no one type of MVZ chain. They differ considerably. While some seem to want to maximize profits in the short term at any cost, others provide modern practice equipment and flexible working time options for employees in Germany. Just as there are "black sheep" among individual practices who put maximum income before patient well-being, practice equipment and the practice team, dubious practices can also be found among german MVZ chains.

Need for larger units in the german outpatient care sector

It is important not to lose sight of the fact that german (dental) practices are becoming increasingly complex in terms of equipment and administrative work. At the same time, there is a growing desire among colleagues for flexible (part-time) working hours, and more and more of them would like to concentrate on the actual work rather than on administrative "paperwork".

We therefore advise against making blanket condemnations of MVZs with multiple locations in Germany. Those who do so may miss out on a good offer. It can therefore do no harm to first have the concept of the interested party presented to you. Experience shows that doubtful intentions come to light quite quickly.

Tax optimization of the practice handover under german tax law

For a successful sale of a practice in Germany, it is imperative to consider the tax consequences and structuring options. The development of a tax strategy with a tax advisor is essential.

A practice sale in Germany is privileged for tax purposes with a variable tax allowance and a reduced income tax rate. These tax benefits are available once in a lifetime and are subject to certain conditions, such as reaching the age of 55. These privileges may subsequently cease if the transferor continues certain professional undertakings to a certain extent in Germany. Therefore, the intentions should be closely coordinated with a tax advisor. Contact us in this regard and we will be happy to advise you.

FAQ: Surrender of practice, practice purchase agreement under german law

As a german commercial law firm with certified specialists for medical law and corporate law, we advise physicians and members of the medical professions on all legal and tax issues relating to the sale and takeover of a practice in Germany. Our team of lawyers and tax advisors has the necessary practical experience to provide you with optimal support in the preparation, drafting and negotiation of contracts.

For a non-binding inquiry, please contact one of our contacts directly by phone or e-mail or use the contact form at the bottom of this page.

Our experts are repeatedly confronted with the following questions in their consulting work: