📖 Approx. 7 min read
For clinic directors and chairpersons struggling with a lack of successors, the two main options upon retirement are “closure (liquidation)” and “succession to a third party (M&A).” This article provides a thorough comparison from a professional perspective, examining the economic profits and losses, procedural costs, tax implications, and even the impact on regional healthcare for both medical corporations and individual clinics.
The Choice Between “Closure” and “Succession” for Clinic Directors Facing Successor Shortage
In recent years, with the aging of physicians and a growing shortage of successors, the survival of clinics that have supported regional healthcare has become a major issue. While the consolidation and functional differentiation of medical institutions are progressing in line with the promotion of regional medical plans and Ministry of Health, Labour and Welfare statistics, how to pass on the accumulated patients, staff, and medical equipment to the next generation is a crucial final decision for management.
Generally, when there is no successor, “closure” is often chosen. However, from an economic standpoint, “succession to a third party (M&A)” can frequently be more advantageous. The optimal choice varies significantly depending on the clinic’s size, location, specialty, and the type of medical corporation (e.g., whether it has equity interests). It is therefore important to first correctly understand the economic impact of each option.
Costs and Economic Burden of Legal Procedures for “Clinic Closure”
When a clinic closes, it not only ceases operations but also tends to incur significant economic “outlays (costs).” The costs of closure, which are often overlooked, generally include the following items:
- Restoration Costs for Rental Properties (Return to Skeleton): For leased properties, all interior finishes must be dismantled and the property returned in a skeleton state according to the lease agreement, incurring demolition costs ranging from tens of thousands to hundreds of thousands of yen per tsubo.
- Disposal Costs for Medical Equipment and Waste: Proper disposal of X-ray machines, electronic health record systems, and specially controlled industrial waste (such as infectious waste) requires fees paid to specialized contractors.
- Severance Pay for Staff: Personnel costs such as severance pay and advance notice pay for dismissed nurses and administrative staff are incurred.
- Lump-Sum Repayment of Remaining Lease and Maintenance Contracts: If there are outstanding lease contracts for medical equipment, the remaining balance must generally be settled in full at the time of closure.
- Confirm the “restoration clause” and “notice period for termination” (typically 6 months or more) in the lease agreement.
- Calculate the remaining balance on medical equipment leases and any mid-term cancellation penalties.
- Review the severance pay regulations for employees and establish a schedule for notice of termination.
- Understand the notification processes for various authorities, including the public health center, regional bureau of health and welfare, labor standards inspection office, and tax office.
Furthermore, if the dissolution of a medical corporation is involved, legal procedures such as public notice of dissolution in the official gazette, appointment of a liquidator, and determination of residual assets can take at least several months to a year, and will also incur fees for judicial scriveners and tax accountants.
Economic Benefits of “Third-Party Succession” and Specific Issues for Medical Corporations
Choosing third-party succession (medical practice M&A) not only avoids closure costs but also offers the potential to receive a transfer price, including goodwill (noren). This can be expected to secure retirement funds for the director or liquidation funds for the medical corporation.
However, the type of medical corporation and the presence or absence of equity interests significantly impact the economic aspects of the succession process.
For medical corporations with equity interests (“Shushimochibun ari”), transferring these interests can result in capital gains tax (approximately 20% flat tax), allowing a significant amount of funds to remain with the individual. On the other hand, for medical corporations without equity interests (such as those funded by contributions, “Kikin Kyoshutsugata”), the equity transfer scheme cannot be used. In such cases, common methods include paying retirement benefits or transferring control through changes in members and directors (transfer of control by resolution of the general meeting of members). For contribution-based corporations, the “return of contributions” process must be handled appropriately, and sophisticated tax judgments are required regarding the valuation of contributions and how returned amounts are treated.
Economic Comparison of Closure vs. Succession (Comparison Table)
The table below compares the specific economic impacts of clinic closure and succession across several evaluation criteria. While details vary by case, succession generally shows a higher advantage.
| Comparison Item | Closure (Liquidation) | Third-Party Succession (M&A) |
|---|---|---|
| Initial Costs & Procedural Fees | Millions to tens of millions of yen for restoration, equipment disposal, dissolution registration, etc. (out-of-pocket) | Professional fees such as brokerage fees are incurred, but can be offset by the transfer price. |
| Transfer Price (Available Funds) | None (Residual assets may be distributed, but with tax risks) | Potential to receive sale profit including goodwill (estimated: tens of millions of yen or more) |
| Staff Employment | All staff dismissed (severance payments required) | Generally, all staff continue employment (taken over by the acquirer) |
| Impact on Patients & Regional Healthcare | Obligation to store medical records; patients forced to transfer to other clinics | Medical services continue smoothly, and patient records are transferred seamlessly |
| Lease Contracts & Debts | Lump-sum repayment required | Transferred to the acquirer (or settled under transfer terms) |
※Note: Actual costs and proceeds vary significantly depending on the clinic’s financial status, specialty, location, and negotiation outcomes.
Tax Treatment and Considerations for Succession (Individual vs. Corporate)
The tax implications of medical practice succession differ significantly depending on whether the seller is an individual business owner or a medical corporation. It is crucial to be aware of this, as missteps can lead to unexpectedly heavy tax burdens.
Taxation for Succession of Individual Clinic Practices
In the succession of an individual practice, the transfer price for goodwill (noren) is taxed as “capital gains,” “lump-sum income,” or “business income,” etc. It is necessary to calculate taxes by carefully categorizing the assets being transferred (land, buildings, medical equipment, goodwill) according to their nature. In particular, if real estate is transferred, tax rates vary based on the holding period (short-term vs. long-term capital gains). Furthermore, the applicability of exemptions for social insurance medical fees needs to be clarified for individual business tax purposes.
Taxation for Succession of Medical Corporations
When a medical corporation is succeeded through the transfer of equity interests, a flat tax rate of 20.315% (15% income tax, 5% resident tax, 0.315% special reconstruction income tax) applies to the capital gains. This is a very favorable rate compared to individual income tax rates (progressive taxation up to 55%). However, for medical corporations without equity interests, it is common to structure the transaction as “retirement benefits.” In this case, planning to utilize retirement income deductions is crucial for reducing the tax burden.
- Current Status Analysis & Preliminary Valuation: Review of the clinic’s financial status, confirmation of the medical corporation type, and estimation of the expected transfer price (goodwill).
- Setting Terms & Preparing Documents: Organizing desired transfer terms and creating a non-name sheet (anonymized information document).
- Matching & Letter of Intent: Meetings with potential buyers, receiving letters of intent, and signing a basic agreement.
- Due Diligence: Responding to financial, legal, and labor investigations by the buyer’s specialists (CPAs, tax accountants, etc.).
- Final Agreement & Administrative Procedures: Signing the transfer agreement, procedures for changing directors and members, and notifications to relevant authorities (public health center, regional bureau, etc.).
Impact of Regional Healthcare Plans and Medical Fee Revisions on Succession Value
The “value” of a clinic is not solely determined by past financial statement figures. The national “Regional Healthcare Plans” and the bi-annual “Medical Fee Revisions” directly influence succession value (goodwill).
For example, facility standards that a clinic has obtained, such as those related to the reorganization of hospital bed functions under regional healthcare plans, evaluation of primary care physician functions, and readiness for home medical care and online consultations, represent significant strengths. For buyers, even if it is difficult to meet these facility standards when starting a new practice, the ability to inherit existing facility standards and patient base through succession creates an incentive to pay a high premium (goodwill). Understanding the trends in medical fee revisions and visualizing the clinic’s strengths is key to a successful succession.
Considering Sustainable Options for Medical Institutions
For clinics that have long contributed to regional healthcare, the decision to retire due to a lack of successors is a weighty one. While “closure” may seem like a simple solution, it often involves significant financial outlays, the challenge of finding new clinics for patients, and job losses for staff. On the other hand, “third-party succession” can be a sustainable option that resolves these issues, secures founder’s profits, and continues to maintain the light of regional healthcare. It is recommended to simulate which option would be best for your clinic from an early stage.
M&A Medical (CentralMedience Inc. / M&A Support Institution certified by the Small and Medium Enterprise Agency) offers free “Closure/Succession Simulations” tailored to the clinic’s financial situation and medical corporation type (e.g., presence of equity interests), conducted by specialists familiar with the medical industry. Clinic directors and chairpersons who wish to know “how much their clinic can be sold for” or “compare it with the costs of closure” are encouraged to take advantage of our free consultation service.
Consult M&A Medical for Medical Succession
M&A Medical is a specialized M&A and business succession support service for medical institutions. As an M&A Support Institution certified by the Small and Medium Enterprise Agency, we support the success of transfers for clinics and medical corporations struggling with successor shortages, as well as strategic acquisitions, on a success-fee basis.
- Initial consultation and preliminary assessment are free
- No upfront fees or monthly charges (success fee only)
- Strict confidentiality (proceeds under NDA)
- Service available nationwide across all 47 prefectures and all medical specialties
Please consult us early in your consideration phase, whether you “just want to know the market price,” “have no successor,” or “are considering joining a group.”