Physician Retention & IRC § 721 Equity Rollover
Engineering tax-deferred rollover equity structures that provide founder-physicians with immediate cash liquidity plus an asymmetric 3x–4x return on their retained MSO interest.
A healthcare platform is only as valuable as the clinical talent driving patient encounters. If a private equity buyer acquires a practice and the lead physician departs within 12 months, patient volume plummets and the asset is impaired. Kompanie LLP structures sophisticated IRC Section 721 tax-deferred partnership rollover equity programs. Founder-physicians take 60%–80% of their enterprise value in cash at close, while rolling the remaining 20%–40% into parent MSO units tax-free. When the platform recapitalizes at 13.5x+ EBITDA, the physician's rolled equity frequently yields more wealth than their initial cash exit—the famous 'second bite of the apple.'
Deliverables
- Drafting Section 721 tax-deferred equity contribution agreements and MSO operating agreements.
- Structuring Class B Incentive Units / Profits Interests for associate physicians and key clinical staff.
- Establishing Physician Clinical Advisory Boards ensuring medical autonomy and governance participation.
- Designing productivity-based clinical compensation plans compliant with Stark Law FMV standards.
Frequently asked questions
What is the tax benefit of rolling equity under Section 721?
Under IRC Section 721, the contribution of practice assets or partnership interests in exchange for MSO equity is treated as a tax-free exchange. Capital gains taxes are deferred until the ultimate recapitalization or exit of the parent MSO.
How do you keep physicians motivated after they receive a multi-million-dollar cash payout?
By pairing rollover equity with competitive, market-rate clinical compensation formulas (e.g. wRVU-based pay) and showing them the financial model where their 20% retained equity can triple in value upon platform recapitalization.