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 a pharmacy be sold? Who is eligible to acquire a pharmacy? How can we help you? The answers to these and other questions can be found 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 for many years provided comprehensive legal assistance and business advisory services. Every year, we manage numerous (usually successful) projects supporting our clients in the purchase or sale of pharmacies. Our services in this area comprise professional legal advice—meaning we draft documents and agreements—as well as guaranteeing the highest possible degree of transaction security. Furthermore, we offer business consultancy and transaction brokerage, supporting our clients with our contacts and capabilities in finding the most favourable offers on the market, and subsequently representing them in negotiations. We also assist by preparing businesses for disposal or by vetting potential pharmacies prior to purchase when acting on behalf of buyers. Naturally, upon request, we also provide the necessary opinions in the field of tax law. Therefore, in addition to reading the article below, we warmly invite interested parties to contact.

Entry

  The sale and purchase of a pharmacy is complex because it combines both related issues stricto sensu both private law, meaning the sales process itself, and issues related to public law, which regulates matters concerning the obtaining of appropriate permits to run a community pharmacy, as well as dozens of other legal acts. It must be remembered that the activity of running a pharmacy is a strictly regulated activity, which means that its performance requires meeting specific conditions set out, inter alia, by the provisions of the Pharmaceutical Law. At the same time, these provisions have undergone successive revolutions many times in recent years. Regarding the sale of pharmacies, a key event was the entry into force of the amendment to the Pharmaceutical Law of 7 April 2017, widely known as "Pharmacy for the Pharmacist". Bearing the above in mind, in order to properly discuss the titular issue, below we address in turn: I. Permissible forms of running a pharmacy business, II. Ways of disposing of a pharmacy depending on the form of the business conducted, III. Entities that are authorised to acquire a pharmacy. However, this article does not discuss in detail the procedure related to the change of the permit to run a community pharmacy, as 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 single, 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 generally accessible pharmacy is run in the form of a sole proprietorship – which may be the case both for entrepreneurs who obtained their permit under the old law and for those who obtained their permit after the entry into force of the "Pharmacy for the Pharmacist" act – the entrepreneur has essentially only one available solution, which consists in selling the entire enterprise or its organised part. In accordance with the wording of Article 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. as a certain economic entity, may constitute the subject of civil law transactions, that is, it may be disposed of by means of legal transactions. For, in accordance with the content of Article 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 may not be sufficient in a situation where the enterprise includes real estate (Article 158 of the Civil Code). Furthermore, the issue of liability of both the transferor and the transferee of the enterprise has been regulated in a specific manner. Pursuant to Article 55⁴ C.C.: "The purchaser of an enterprise or agricultural holding is jointly and severally liable with the transferor for its liabilities connected with the operation of the enterprise or holding, unless at the time of purchase he did not know about these liabilities, despite exercising due diligence." Joint and several liability, in turn, consists in the fact that a creditor whose claim is connected with the enterprise operated by the transferor will be able to claim the entirety of their claim from both the transferor of the enterprise and its purchaser (Article 366 § 1 of the Civil Code). It follows from the above that it is extremely important – above all from the perspective of the pharmacy purchaser – to conduct a reliable and extremely thorough due diligence investigation 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 mentioned above, pharmacy operations could be carried out in the form of a registered partnership or a professional partnership even before the entry into force of the Pharmacy for Pharmacists Act, whereas currently it is the only permissible form of conducting this activity alongside sole proprietorships. Furthermore, pharmacies operated in the form of limited partnerships, which obtained their permits under the old law, are also frequently encountered in commerce. Both the registered partnership, the professional partnership and the limited partnership belong to the category of so-called commercial partnerships. In contrast to capital companies (such as the private limited company and the public limited company), partnerships do not have legal personality, forming a category of so-called imperfect legal persons, i.e., organisational units without legal personality to which the legislature has granted legal capacity (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. Since both a registered partnership, a limited professional partnership and a limited partnership can operate an enterprise in their own name under their own business name, it should be noted that all these partnerships have the option of concluding an agreement for the sale of all or part of the enterprise operated by them – in the manner described above in the context of discussing sole proprietorships. In such a situation, however, it must be borne in mind that the sale of even the entire enterprise will not automatically entail the dissolution of the partnership, and therefore – if the partners do not intend to continue conducting business activity – this will not always be the preferred method, both from the perspective of the interests of the vendor and the purchaser of the pharmacy. On the other hand, however, it cannot be ruled out that the partnership will operate several publicly accessible pharmacies, and only a part of them (or a single pharmacy) will be subject to sale. In such a case, the only remaining solution will be the sale of the so-called organised part of the enterprise comprising those several (or single) pharmacies, with the partnership continuing its business activity with regard to the remaining pharmacies. The second proposed solution – recommended in a situation where the partners have decided to completely cease conducting business activity – is the sale of all the rights and obligations of the partnership's partners to third parties who wish to 'take over' the running of the pharmacy. For it must be remembered that in the case of commercial partnerships, we cannot speak of stricto sensu about shares in the company's capital (as is the case with a private limited company), but rather a certain bundle of property and corporate rights and obligations resulting from the fact of participation in the company. The disposal of this bundle of rights leads consequently to a change in the personal composition of the company, which nevertheless continues its business activity uninterrupted. At the same time, it should be borne in mind that the disposal of all rights and obligations in a partnership is subject to certain restrictions. For, pursuant to Article 10 § 1 of the Act of 15 September 2000 – Commercial Companies Code: "All rights and obligations of a partner in a partnership may be transferred to another person only if the partnership agreement so provides." Furthermore, pursuant to § 2: "All rights and obligations of a partner in a partnership may be transferred to another person only after obtaining the written consent of all other partnersunless the articles of association provide otherwise.”. Therefore, before deciding to dispose of all rights and obligations in the partnership, it is necessary to thoroughly analyse the articles of association with regard to any restrictions contained therein and, if applicable, to amend the provisions blocking the transaction. Furthermore, one must bear in mind the type of liability of the purchaser of the aforementioned rights in a partnership, regulated by the legislature in Article 10 § 3 of the Commercial Companies Code, pursuant to which: „In the event of the transfer of all rights and obligations of a partner to another person, for the liabilities of the withdrawing partner related to participation in the partnership and the liabilities of that 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 Therefore, it is all the more significant when deciding to acquire rights and obligations in a company that a thorough examination of the company's legal and financial standing is conducted before making a decision to acquire rights and obligations from the current partners. To summarise the above – if the pharmacy business is conducted in the form of a registered partnership, professional partnership or limited partnership, partners wishing to dispose of a pharmacy have two options: 1) the sale of the enterprise or an organised part thereof to a third party – recommended in situations where only a part of the business venture is to be disposed of, 2) the sale of all rights and obligations of the company's partners to third parties – recommended in situations where the partners wish to definitively cease conducting business activities. However, the choice of either 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 deal with the preparation of a comprehensive action strategy tailored individually to your needs.

limited liability company

Finally, a few words should be devoted to the private limited company as another type of company commonly encountered in legal transactions and undoubtedly the most popular legal form of conducting business (alongside sole proprietorships). At the same time, as mentioned above, under the current legal status, it would be impossible to establish a pharmacy in the form of a private limited company due to the restrictions resulting from Article 99(4) of the Pharmaceutical Law. Therefore, the following remarks will naturally refer to companies that obtained a permit to run a pharmacy before the entry into force of the Pharmacy for Pharmacists Act: A private limited company is a commercial capital company which has legal personality from the moment of entry into the National Court Register. Furthermore, unlike the partnerships described above, this company can be formed and operated by just one person. At the same time, a private limited company can be formed for any legally permissible purpose, and therefore it does not necessarily have to be a company formed to conduct business activity (Article 151(1) of the Code of Commercial Partnerships and Companies). In the case of interest to us, however, private limited companies running a pharmacy business undoubtedly conduct business activity, and consequently they run businesses in their own name and under their own business name. Consequently, all the observations made above concerning the sale of the whole or an organised part of an enterprise remain equally applicable to this form of business activity. The second of the available options – similarly to partnerships – is to bring about a change in the personal composition of the shareholders of a private limited company, which is effected through the sale of shares held by them in the share capital of the company. For the effective disposal of shares in a private limited company, it is first and foremost necessary to conclude an agreement between the transferor and the transferee. At the same time, for this agreement – pursuant to Article 180 of the Code of Commercial Partnerships and Companies – the legislature has provided for a specific form in the form of writing with signatures notarially certified. Furthermore, it should be borne in mind that, pursuant to Article 182 § 1 of the Code of Commercial Partnerships and Companies: "The company agreement may make the disposal of a share, a part thereof or a fractional part of a share, as well as the pledging of a share, subject to the company's consent or restrict it in another manner." Consequently, prior to concluding the planned transaction, it is once again necessary to thoroughly analyse the provisions of the private limited company agreement in order to identify any potential restrictions on the transferability of shares. Finally, no less important is the issue of registering the relevant amendments with the register court keeping the company's registration files (KRS ZE or KRS-ZEL3 form in the case of S24 companies), to which a number of required documents must be attached. To sum up, the shareholders of a private limited company have two avenues aimed at disposing of the publicly accessible pharmacy operated by the company: 1) the sale of the whole or part of the enterprise operated by the company – which nevertheless does not automatically lead to the termination of the company's business activity, 2) the sale of shares in the company's share capital – which leads to a change in the personal composition of the company, which continues to conduct business activity but with a new personal substrate.

III. Entities that may purchase a pharmacy

The methods of disposing of a community pharmacy described above focused primarily on the civil law aspects related to the disposal of an enterprise or its organised part, as well as the disposal 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 acquire a pharmacy could be – anyone who has the capacity to perform legal acts. However, this would not take into account the public law perspective, i.e. the fact that pharmacy activity is a regulated activity and, consequently, certain restrictions in this regard arise from the provisions of the Pharmaceutical Law. There is no doubt that the entity acquiring a pharmacy (by this concept we understand both the acquisition of an enterprise and the acquisition of rights and obligations in a company) must lead to a change in the permit to run a community pharmacy. At the same time, pursuant to Article 104a of the Pharmaceutical Law, the authority issuing the permit, i.e. the Provincial Pharmaceutical Inspector, transfers the permit to the pharmacy buyer if the buyer meets the requirements described in Article 99(3), (3a), (4)-(4b) and Article 101(2)-(5) of the Pharmaceutical Law, i.e. the same requirements that are set for persons who want to start running a pharmacy business. On our website, we have already written in detail about the requirements that the legislature sets for persons wanting to start running a pharmacy business under the current legal status, i.e. after the entry into force of "Pharmacy for the Pharmacist" (see: https://klodzinskikancelaria.pl/sprzedaz-apteki-jak-przebiega/), therefore it is only appropriate to recall here that these individuals must, among other things, have the status of pharmacists holding the right to practise the profession, regardless of whether they wish to commence this activity in the form of a sole proprietorship or in the form of a registered partnership or a professional 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 – omitting here other restrictions resulting from the Pharmaceutical Law – are either natural persons holding the status of a pharmacist with the right to practise the profession, or registered partnerships or professional partnerships in which the sole partners are exclusively persons holding such status, due to the currently applicable Article 99(4) of the Pharmaceutical Law. However, can any exceptions to the above rule be found?

Important judgments of the Supreme Administrative Court regarding the sale of pharmacies

On 24 February 2022, the Supreme Administrative Court handed down a judgment in case no. II GSK 477/20, in which it ruled that the new requirements for the transfer of a licence to operate a public pharmacy do not apply to premises operating prior to the entry into force of the ‘Pharmacy for Pharmacists’ scheme. This ruling was based on the facts of the case, in which the partners of a general partnership operating a public pharmacy – which had obtained its licence prior to the entry into force of the ‘Pharmacy for Pharmacists’ Act – had transferred all their rights and obligations to third parties. The partnership subsequently submitted an application to the Provincial Pharmaceutical Inspector to amend the licence to operate a public pharmacy, inter alia by changing the name of the entity operating the pharmacy (as the names of the partners are disclosed in the name of a general partnership – Article 24 of the Commercial Companies Code). The Provincial Pharmaceutical Inspector refused to amend the licence on the grounds that the new partners did not hold the status of pharmacists authorised to practise, which, in the authority’s view, precluded the requested amendment in light of the provisions of Article 94(4) of the Pharmaceutical Law.  The company lodged an appeal against this decision with the Chief Pharmaceutical Inspector, but the latter upheld the decision of the lower-level authority. Subsequently, the company’s appeal was dismissed by the Provincial Administrative Court, against whose ruling the company lodged a cassation appeal. In justifying its position, the Supreme Administrative Court pointed out, amongst other things, that the provisions of the amending Act of 17 April 2017 it does not follow that they are also applicable to pharmacies which obtained their operating licences before the amendment came into force. Furthermore, the Supreme Administrative Court emphasised that adopting a different view would lead to undesirable consequences. This is because, pursuant to Article 2(1) of the amending Act: ‘The existing provisions shall apply to proceedings initiated and not concluded before the date of entry into force of this Act concerning applications for a licence to operate a pharmacy.’ Consequently, adopting the position that the provisions of the ‘Pharmacies for Pharmacists’ Act also apply to business operators who obtained licences before those provisions came into force could lead to a situation in which, at the same time (already after the amendment has come into force) one entity could obtain a new licence under the ‘old’ rules, whilst another entity already holding an ‘old’ licence would be unable to have it amended under the existing rules. Furthermore, this would also constitute, in part, an expropriation, which, however, requires specific regulations and compensation. The Supreme Administrative Court issued an identical ruling to the one cited above in its judgement of the same date, i.e. 24 February 2022, in case no. II GSK 384/20, where it explicitly emphasised: ‘It cannot be concluded that the scope of the provision arising from Article 99( 4 of the Pharmaceutical Law also covers those licences to operate publicly accessible pharmacies which were granted under the old regulations and for which, for whatever reason, an application for amendment has been made. A literal interpretation of the aforementioned provision, supported by a purposive and functional interpretation also informed by the objective of the amendment, therefore leads to the same conclusion – that this provision applies to the granting of new licences, and not to the amendment of ‘old’ ones, granted under a different legal regime. An analysis of the transitional provision (Article 2 of the Act amending the Pharmaceutical Law) leads to the conclusion that so-called ‘old authorisations’ granted before the entry into force of the amendment in question may be exercised under the old rules, and the new requirements arising from Article 99( 4 of the Pharmaceutical Law, as amended, do not apply to them, even where proceedings concerning the amendment of an “old” authorisation were initiated after the Act amending the Pharmaceutical Law had already entered into force.” (judgement of the Supreme Administrative Court of 24 February 2022, case no. II GSK 384/20, Legalis 2686432). To summarise the above, in accordance with the latest case law of the Supreme Administrative Court, the purchaser of a publicly accessible pharmacy which obtained a licence to operate from the competent Provincial Pharmaceutical Inspector either before the ‘Pharmacy for Pharmacists’ Act came into force or after it came into force, but as a result of an application submitted before 25 June 2017, may be either natural persons who do not hold the status of a pharmacist authorised to practise, or partnerships whose partners do not hold that status, as well as limited liability companies, since they too were permitted to operate pharmacies under the previous legislation. In all other respects, i.e. in the case of publicly accessible pharmacies operating on the basis of a licence already obtained under the provisions in force following the amendments introduced by the ‘Pharmacy for Pharmacists’ Act, the restrictions on entities, as well as other restrictions (e.g. those relating to the concentration of pharmacies) arising from the new regulations must be fully respected. It should be emphasised here that, at present, it is difficult to predict how the State Pharmaceutical Inspection authorities will approach the above judgements. It must be borne in mind that these judgements were handed down in the context of specific cases and, in theory, do not have the force of generally applicable law. Nevertheless, in the opinion of our Team, Pharmaceutical Law Office The theses stemming from these rulings of the highest administrative court should have been rather obvious for a long time in light of the enacted provisions, and thus they must be fully endorsed. Therefore, even in the event of some resistance from the competent pharmaceutical inspection authorities, further positive outcomes in favour of pharmacy purchasers should ultimately 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. For every case is slightly different and requires individual treatment, while when selling a pharmacy, hiring a specialised law firm ultimately almost always pays off significantly, both legally, commercially and from a tax perspective. Our Law Firm has its own database containing hundreds of decisions by the Provincial Pharmaceutical Inspectorate (WIF), the General Pharmaceutical Inspectorate (GIF) and the Ministry of Health (MZ), as well as many years of experience in pharmaceutical law, specialising, among other things, in providing legal services to entities operating community pharmacies. We also have a wide network of contacts and up-to-date market insight. Therefore, we offer you comprehensive handling of transactions related to the purchase and sale of pharmacies. Such assistance begins with determining the Clients' expectations, then we move on to analysing and compiling the necessary documents, and we initiate the process of their verification – the so-called due diligence, then we support our clients with the valuation of the pharmacy and provide substantial support in finding buyers and in business negotiations. We conclude the project by preparing appropriate – as secure as possible – agreements and subsequently obtaining the transfer of the permit to run a community pharmacy to the buyer. You are warmly invited 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 multi-award-winning expert in 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, and is currently undertaking legal adviser training at the Krakow District Chamber of Legal Advisers. He has actively advised on over a dozen projects regarding the sale and acquisition of community pharmacies.

**Founder of the Law Firm, lawyer specializing in matters relating to pharmaceutical law and civil law [about me]