How to sell a pharmacy? – part two of the article
[article taking into account the changes that occurred in the practical application of the law after the Supreme Administrative Court's judgments from 2022, link to the first part of the article here]
How can you sell a pharmacy? Who can purchase a pharmacy? How can we help you?
You will find the answer to these and other questions in the article below.
There come moments in the lives of many entrepreneurs when - for various reasons - they decide to sell all or part of their business. The situation is no different for entrepreneurs running publicly available pharmacies. And this is for the owners of pharmacies, ours Pharmaceutical Law Office has been providing comprehensive legal assistance and business consulting services for many years.
Every year we run many (usually successful) projects to support our clients in purchasing or selling pharmacies. Our services in this area consist of professional legal advice, i.e. we prepare documents and contracts, and we guarantee the highest possible level of transaction security. In addition, we offer business consulting and transaction agency, supporting clients with our contacts and opportunities in searching for the most advantageous offers on the market, and then representing them in negotiations. We also help by preparing enterprises for sale or by verifying potential pharmacies before purchasing them - when we act on behalf of buyers. Of course, upon request, we also provide the necessary opinions in the field of tax law. Therefore, in addition to reading the article below, we cordially invite those interested to: contact.
Entry
The sale and purchase of a pharmacy is complex because it combines both related issues stricto sensu with private law, i.e. the sales process itself, as well as issues related to public law, regulating issues related to obtaining appropriate permits to run a publicly available pharmacy, as well as several other legal acts. It should be remembered that the activity of running a pharmacy is a strictly regulated activity, which means that its performance requires meeting specific conditions specified, among others, by the provisions of the Pharmaceutical Law. At the same time, these regulations have undergone numerous revolutions in recent years. In the matter of the sale of pharmacies, the key event was the entry into force of the amendment to the Pharmaceutical Law of April 7, 2017, better known as "Pharmacy for the Pharmacist".
Taking into account the above, in order to properly discuss the title issue, we refer below to:
I. Acceptable forms of conducting pharmacy business,
II. Methods of selling a pharmacy depending on the form of business
III. Entities authorized to purchase a pharmacy.
However, this article does not discuss in detail the procedure related to changing the permit to operate a generally accessible pharmacy, because we have already discussed this issue in detail in previous texts on pharmacy sales. At the same time, the further considerations presented below take into account both the legal status in force until June 25, 2017 (entry into force of "Pharmacy for Aptekarz") and the legal status in force after that date (the article was prepared according to the legal status as of August 2022.)
I. Acceptable forms of conducting pharmacy business
As mentioned in the introduction, the activity of running a community pharmacy is a strictly regulated activity, which is reflected, among others, in: in that these pharmacies cannot be run in any legal form of business activity chosen by the entrepreneur, but must meet the requirements imposed in this respect by the legislator. Pursuant to Art. 99 section 4 Pharmaceutical Law:
“4. The following persons have the right to obtain a permit to run a public pharmacy:
1) pharmacist with the right to practice the profession, leading singlę economic activity;
2) general partnership or a partnership, whose subject of activity is exclusively running pharmacies and whose partners (partners) are exclusively pharmacists who have the right to practice the profession referred to in point 1."
It follows from the above that, in the current legal situation, it is impossible to start running a publicly available pharmacy in a form other than that described in the above-mentioned regulation, i.e. in the form of a sole proprietorship or in the form of a general partnership or partnership of pharmacists.
Previous legal status
However, it should be borne in mind that the above does not apply to entrepreneurs who obtained a permit to run a generally accessible pharmacy before the entry into force of the Pharmacy for Pharmacist regulations. In the legal status in force until June 25, 2017, the legislator established a much broader catalog of legal forms permitted to conduct pharmacy activities. Pursuant to the content of art. 99 section 4 of the Pharmaceutical Law in force until the date of entry into force of the amendment:
“4. The right to obtain a permit to run a pharmacy is granted to a natural person, a legal person and a commercial company without legal personality.
Therefore, it should be emphasized that in legal transactions there are generally accessible pharmacies operated both in the form provided for by the provisions currently in force (i.e. sole proprietorships and general partnerships or partnerships), but also in the form in force until the date of entry into force of the "Pharmacy for the Pharmacist" ( i.e. e.g. in the form of limited partnerships and limited liability companies). The legal form in which the business is conducted has an impact on both civil law and administrative law aspects related to the sale of a pharmacy, which will be discussed in more detail later in this article.
II. The form of running a pharmacy business and the method of selling a pharmacy
As indicated above, the form of business activity has an impact on the legal solutions available to an entrepreneur intending to sell a publicly available pharmacy. The range of these solutions will be different for an entrepreneur running a sole proprietorship and different for an entrepreneur who is a commercial law company, and therefore the issue in question is discussed separately for each of the above-mentioned companies. forms of business activity.
Sole proprietorship
If a public pharmacy is run as a sole proprietorship - which may be the case both in the case of entrepreneurs who obtained the permit under the old law and in the case of entrepreneurs who obtained the permit after the entry into force of the "Pharmacy for the Aptekarz" - the entrepreneur has Basically, the only available solution is to sell the entire enterprise or its organized part.
Pursuant to the content of art. 551 Act of April 23, 1964 - Civil Code: "An enterprise is an organized set of intangible and tangible components intended to conduct business activities. (…)”. In the further part of the cited regulation, the legislator in the form of an open catalog (numerus apertus) indicated what the enterprise is composed of, including: markings individualizing the enterprise, ownership of real estate, movable property and other property rights, but also - which is particularly important from the perspective of the analyzed issue - concessions, licenses and permits. However, it should be noted that in the case of a permit to operate a community pharmacy, its transfer to the buyer does not take place automatically, but requires the initiation of an administrative procedure before the Provincial Pharmaceutical Inspector, as we wrote about in the previous article (https://klodzinskikancelaria.pl/sprzedaz-apteki-jak-przebiega/).
At the same time, an enterprise understood in this way, i.e. a certain economic entity, may be the subject of civil law transactions, i.e. subject to sale by way of legal transactions. Pursuant to the content of Art. 552 Civil Code "A legal act relating to an enterprise covers everything that is part of the enterprise, unless the content of the legal act or specific provisions states otherwise." For concluding an agreement on the sale of an enterprise, the legislator has provided for a special form of legal action in the form of a written form with a notarially certified signature (Article 751 Civil Code), which, however, may not be sufficient in a situation where the enterprise includes real estate (Article 158 of the Civil Code).
Moreover, the issue of liability of both the seller and the buyer of the enterprise was regulated in a specific way. Pursuant to Art. 554 Civil Code: "The purchaser of an enterprise or farm is jointly and severally liable with the seller for its obligations
with running a business or farm, unless he was unaware of these obligations at the time of acquisition, despite exercising due diligence. Joint and several liability, in turn, means that a creditor whose receivable is related to the enterprise run by the seller will be able to recover his entire receivable from both the seller of the enterprise and its purchaser (Article 366 § 1 of the Civil Code).
It follows from the above that it is extremely important - primarily from the perspective of the pharmacy buyer - to conduct a reliable and extremely thorough examination due diligence the acquired enterprise before the transaction is concluded, which will help avoid liability for third party obligations in the future. The Kłodziński Law Firm provides full support to persons interested in purchasing a pharmacy in conducting a comprehensive audit of the acquired enterprise also in this respect.
General partnership, professional partnership and limited partnership
As already mentioned above, pharmacy activities could be carried out in the form of a general partnership or a partnership before the entry into force of Apteka dla Aptekarz, but currently it is the only - apart from sole proprietorship - permitted form of conducting this activity. Moreover, there are also pharmacies operated in the form of limited partnerships, which obtained permits under the old law.
Both a general partnership, a professional partnership and a limited partnership belong to the category of the so-called personal commercial law companies. Unlike capital companies (such as a limited liability company and a joint-stock company), partnerships do not have legal personality, creating a category of the so-called defective legal persons, i.e. organizational units without legal personality which were granted legal capacity by the legislator (Article 331 CC). It follows from the above that a general partnership may be the subject of rights and obligations, may have assets separate from the assets of its partners, may sue and be sued, and may also run a business under your own name in your own name.
Therefore, since both a general partnership, a professional partnership and a limited partnership can run an enterprise in their own name under their own name, it should be noted that all these companies have the possibility of concluding an agreement on the sale of all or part of the enterprise - in the manner described above when discussing sole proprietorship. . In such a situation, however, it should be borne in mind that the sale of even the entire enterprise will not automatically result in the dissolution of the company, and therefore - if the partners do not intend to continue running the business - this will not always be the preferred method considering the interests of the seller, as well as pharmacy buyers. On the other hand, it cannot be ruled out that the company will run several public pharmacies, and only part of them (or one pharmacy) will be sold. Then the only solution will be to sell the so-called organized part of the enterprise covering these several (or one) pharmacies and the continuation of business activities in the scope of other pharmacies by the company.
The second proposed solution - recommended in a situation where the partners have decided to completely terminate the business activity - is to sell all the rights and obligations of the company's partners to third parties who want to "take over" the running of the pharmacy.
It must be remembered that we cannot speak in the case of partnerships stricto sensu about shares in the company's capital (as is the case with a limited liability company), but about a certain set of rights and obligations of a property and corporate nature resulting from the fact of participation in the company. The sale of this bundle of rights leads to a change in the composition of the company, which, however, continues to conduct business activities without interruption.
It should be remembered that the disposal of all rights and obligations in a partnership is subject to certain restrictions. Pursuant to the content of Art. 10 § 1 of the Act of 15 September 2000 - Commercial Companies Code: "All the rights and obligations of a partner in a partnership may be transferred to another person only if the partnership agreement provides so." Moreover, pursuant to § 2: "All the rights and obligations of a partner in a partnership may be transferred to another person only after obtaining the written consent of all other partners, unless the company agreement provides otherwise. Therefore, before making a decision to sell all rights and obligations in the company, it is necessary to carefully analyze the company agreement in terms of the existing restrictions and possibly change the provisions blocking the transaction.
Moreover, the type of liability of the purchaser of the above-mentioned products must be taken into account. rights in a partnership, regulated by the legislator in Art. 10 § 3 of the Commercial Companies Code, according to which: "In the event of transfer of all the rights and obligations of a partner to another person, the obligations of the withdrawing partner related to participation in the partnership and the obligations of this partnership the acting partner and the partner joining the partnership are jointly and severally liable". At the same time, in this regulation the legislator did not make joint and several liability dependent on the performance of acts of due diligence, as was the case in the context of the above-discussed4 Civil Code, therefore, in the case of a decision to acquire rights and obligations in a company, it is even more important to carefully examine the legal and financial status of the company before making a decision to acquire rights and obligations from the existing partners.
To summarize the above - if the pharmacy business is conducted in the form of a general partnership, professional partnership or limited partnership, partners wishing to sell the pharmacy have two options: 1) sale of the entire or an organized part of the enterprise to a third party - recommended when only part of the business venture is to be sold, 2 ) sale of all rights and obligations of the company's partners to third parties - recommended when the partners would like to definitively discontinue the business.
However, the choice of one of the above solutions must be preceded by a detailed analysis of the legal and factual situation of the partners and the company itself. Within our law firm, we prepare a comprehensive action strategy tailored individually to your needs.
limited liability company
Finally, a few words should be devoted to a limited liability company as another type of company commonly found in legal transactions and undoubtedly the most popular (next to sole proprietorships) legal form of conducting business. At the same time, as mentioned above, in the current legal situation it would be impossible to establish a pharmacy in the form of a limited liability company due to the restrictions resulting from Art. 99 section 4 Pharmaceutical Law. Therefore, the following comments will necessarily apply to companies that obtained permission to operate a pharmacy before the entry into force of the Pharmacy for Aptekarz:
A limited liability company is a capital commercial law company that has legal personality from the moment of entry into the National Court Register. Moreover, this company - unlike the partnerships described above - can be established and run by just one person. At the same time, a limited liability company may be established for any legally permissible purpose, so it does not necessarily have to be a company established to conduct business activities (Article 151(1) of the Commercial Companies Code).
In the case we are interested in, however, limited liability companies carrying out pharmacy activities undoubtedly conduct business activities, and therefore they run businesses in their own name and under their own business name. Therefore, all comments made above regarding the sale of the entire or organized part of the enterprise remain valid also in the case of this form of business.
The second available option - as in the case of partnerships - is to change the personal composition of the partners of a limited liability company, which is done by selling the shares they are entitled to in the company's share capital. For the effective sale of shares in a limited liability company, it is first necessary to conclude an agreement between the seller and the buyer. At the same time, for this contract - in accordance with Art. 180 of the Commercial Companies Code - the legislator provided for a special form in writing with notarially certified signatures.
Moreover, please remember that in accordance with Art. 182 § 1 of the Commercial Companies Code: "The sale of a share, part thereof or a fractional part of a share and the pledge of a share may be made subject to the consent of the company or otherwise restricted in any other way." Therefore, before concluding the planned transaction, it is again necessary to carefully analyze the provisions of the limited liability company agreement in order to identify any possible restrictions on the transfer of shares. Finally, no less important is the issue of reporting appropriate changes to the registry court keeping the company's registration files (form KRS ZE or KRS-ZEL3 in the case of S24 companies), which must be accompanied by a number of required documents.
To sum up, the shareholders of a limited liability company have two options for selling a general pharmacy run by the company: 1) sale of all or part of the enterprise run by the company - which, however, does not automatically lead to the termination of the company's operations, 2) sale of shares in the company's share capital - which leads to to change the personnel of the company, which continues to conduct business activities but with a new personnel base.
III. Entities that may purchase a pharmacy
The above-described methods of selling a general pharmacy focused primarily on civil law aspects related to the sale of an enterprise or its organized part, as well as the sale of all rights and obligations in a partnership or shares in a capital company. From a civil law perspective, the answer to the question of who can purchase a pharmacy could be anyone who has legal capacity. However, the above would not take into account the public law perspective, i.e. the fact that pharmacy activities are regulated activities and, therefore, certain restrictions in this respect result from the provisions of the Pharmaceutical Law.
There is no doubt that the entity purchasing a pharmacy (this term includes both the acquisition of an enterprise and the acquisition of rights and obligations in a company) must change the permit to operate a generally accessible pharmacy. At the same time, in accordance with Art. 104a of the Pharmaceutical Law, the authority issuing the permit, i.e. the Provincial Pharmaceutical Inspector, transfers the permit to the purchaser of the pharmacy if the purchaser meets the requirements described in Art. 99 section 3, 3a, 4-4b and art. 101 points 2-5 of the Pharmaceutical Law, i.e. the same requirements as those for people who want to start running a pharmacy business.
On our website, we have already written in detail about the requirements that the legislator places on people who want to start running a pharmacy business in the current legal situation, i.e. after the entry into force of the "Pharmacy for the Pharmacist" (see: https://klodzinskikancelaria.pl/sprzedaz-apteki-jak-przebiega/), so it is only worth recalling here that these people must, among others: have the status of pharmacists with the right to practice the profession, regardless of whether they want to start this activity in the form of a sole proprietorship or in the form of a general partnership or partnership (Article 94(4) of the Pharmaceutical Law).
It could therefore follow from the above that the only entities to which a pharmacy can be sold in one of the modes described above - apart from other restrictions resulting from the Pharmaceutical Law - are either natural persons having the status of a pharmacist with the right to practice the profession, or companies general partnership or partnership, in which the only partners are only persons with such status, due to the currently applicable Art. 99 section 4 Pharmaceutical Law. However, are there any exceptions to the above rule?
Important judgments of the Supreme Administrative Court regarding the sale of pharmacies
On February 24, 2022, the Supreme Administrative Court issued a judgment in the case with reference number No. II GSK 477/20, in which it ruled that the new requirements for transferring a permit to operate a generally accessible pharmacy do not apply to establishments operating before the entry into force of the Pharmacy for Aptekarz.
The above ruling was made on the basis of the facts in which the partners of a general partnership running a public pharmacy, which had obtained the permit to operate it before the entry into force of Apteka dla Aptekarz, transferred all rights and obligations to third parties. Then, the company submitted an application to the Provincial Pharmaceutical Inspector to change the permit to operate a publicly available pharmacy, among others. by changing the name of the entity running the pharmacy (in the name of a general partnership, the names of the partners are disclosed - Article 24 of the Commercial Companies Code). The Provincial Pharmaceutical Inspector refused to change the permit due to the fact that the new partners did not have the status of pharmacists with the right to practice the profession, which, according to the authority, made it impossible to make the requested change in accordance with the content of Art. 94 section 4 Pharmaceutical Law. The company appealed against the above decision to the Chief Pharmaceutical Inspector, but the latter upheld the decision of the lower authority. Subsequently, the company's complaint was dismissed by the Provincial Administrative Court, against which the company filed a cassation appeal.
Justifying its position, the Supreme Administrative Court stated, among other things, that the provisions of the amending Act of April 17, 2017 do not imply that they would also apply to pharmacies that obtained a permit to operate before the amendment came into force. Moreover, the Supreme Administrative Court emphasized that adopting a different view would lead to dysfunctional consequences. Pursuant to Art. 2 section 1 of the amending Act: "The existing provisions shall apply to proceedings initiated and not completed before the date of entry into force of the Act regarding applications for a permit to operate a pharmacy."
Therefore, adopting the position that the provisions of the "Pharmacy for Pharmacists" also apply to entrepreneurs who obtained permits before their entry into force could lead to a situation in which at the same time (after the entry into force of the amendment) one entity could obtain a new permit under the "old" rules, while another entity that already has the "old" permit would not be able to obtain a change to it under the existing rules. Additionally, it would also be partly expropriation, but this requires special regulations and compensation.
The Supreme Administrative Court issued the same ruling to the above-mentioned court in its judgment of the same day, i.e. February 24, 2022, in the case no. No. II GSK 384/20, where he clearly emphasized:
“It cannot be stated that the scope of operation of the norm resulting from Art. 99 section 4 The Pharmaceutical Law also covers permits for running generally accessible pharmacies that were granted under the old regulations and for which, for some reason, a change was requested. Linguistic interpretation of the above-mentioned provision, supported by a purposive and functional interpretation also conditioned by the purpose of introducing the amendment, leads to the same result - that this provision applies when granting new permits, and not when changing "old" ones granted on the basis of a different legal regime. The analysis of the transitional provision (Article 2 of the Act amending the Pharmaceutical Law) leads to the conclusion that the so-called "old permits" granted before the entry into force of the amendment in question may be executed under the old rules, and the new requirements arising from Art. 99 section 4 of the Pharmaceutical Law as amended do not apply to them, even if the proceedings to change the "old" authorization were initiated after the Act amending the Pharmaceutical Law came into force. (sentence of the Supreme Administrative Court of February 24, 2022, reference number II GSK 384/20, Legalis 2686432).
To sum up the above, in accordance with the latest case law of the Supreme Administrative Court, the purchaser of a generally accessible pharmacy that obtained a permit to operate from the competent Provincial Pharmaceutical Inspector before the entry into force of the Pharmacy for Aptekarz or after its entry into force, but as a result of an application submitted before June 25, 2017 ., may be both natural persons who do not have the status of a pharmacist with the right to practice the profession, as well as partnerships whose partners are persons who do not have this status, as well as limited liability companies, because they could also conduct pharmacy activities under the old law.
In the remaining scope, i.e. in the case of generally accessible pharmacies operating on the basis of a permit already obtained on the basis of the provisions in force after the changes introduced by the "Pharmacy for Aptekarz", subjective restrictions as well as other restrictions (e.g. related to the concentration of pharmacies) resulting from from new regulations.
It should be emphasized here that at the moment it is difficult to guarantee how the authorities of the State Pharmaceutical Inspectorate will approach the above rulings. It should be borne in mind that these judgments were made on the basis of specific cases and theoretically they do not have the value of generally applicable law.
Nevertheless, in our Team's opinion Pharmaceutical Law Office the theses arising from these judgments of the highest instance of the administrative court should have been rather obvious for a long time in the light of the adopted regulations, and therefore they should be divided in their entirety. Therefore, even in the event of some resistance from the competent pharmaceutical inspection authorities, further positive decisions for pharmacy buyers should be expected in the future.
Summary – How to sell a pharmacy?
The next two articles we prepared presented quite a lot of knowledge about pharmacy sales. However, we are not able to answer all questions that may ariserather than by starting to conduct a given case. Each case is slightly different and requires individual treatment, but when selling a pharmacy, hiring a specialized law firm is almost always very profitable, legally, business-wise and tax-wise.
Our law firm has its own database containing hundreds of WIF, GIF and MZ decisions as well as many years of experience in pharmaceutical law, specializing in, among others: in legal services for entities running public pharmacies. We also have a wide contact base and up-to-date market insight. That is why we offer you comprehensive service for transactions related to the purchase and sale of pharmacies,
Such assistance begins with determining the clients' expectations, then we proceed to the analysis and completion of the necessary documents, and we start the process of their verification - the so-called due diligence, then we support our clients in the valuation of the pharmacy and provide significant support in searching for buyers and business negotiations. We finish the project by preparing appropriate, possibly safe contracts and then obtaining the transfer of the license to operate a public pharmacy to the buyer. We cordially invite you to online booking of an initial consultation date at our headquarters in Warsaw or contact to arrange a meeting elsewhere.
Authors: *Antoni Skoczek and **Piotr Kłodziński
*The author is a repeatedly appreciated expert in the field of civil, bankruptcy and pharmaceutical law, a permanent member of the Law Firm's Team, a graduate of the Faculty of Law and Administration of the Jagiellonian University, completing legal counsel training at the District Chamber of Legal Advisors in Krakow. He actively advised on several projects related to the sale and acquisition of public pharmacies.
**Founder of the Law Firm, lawyer specializing in matters relating to pharmaceutical law and civil law [about me]