What to Consider in a Dental Associate Buy-in or Dental Practice Partnership

The timing might be perfect for something you have been thinking about for a while.

If you are the practice owner or Senior Dentist, you may be considering offering your Associate the opportunity to buy in as a partner. Perhaps you wish to slow down without retiring. The Associate could be bringing a new skill set to the practice, and a buy-in could bring an infusion of cash into the practice, and both contribute to practice growth.

If you are the Associate, or Junior Dentist, you may be seriously considering the opportunity to take your professional advancement to the next step. Since you are already working in the practice, the buy-in may be less of a risk than starting from "scratch," or purchasing an existing practice where the practice owner leaves.

If you are thinking about taking on a partner or becoming one, consider the following:

Both dentists must think about why they want to form a partnership. The core of a partnership consists of emotions, personalities, goals and needs. It is one thing to be good friends or compatible on a professional level. However, partners must not only get along, they must share a similar work ethic, level of commitment, vision for the practice and complement each other in strengths. In exchange for shared burdens, shared responsibilities and shared decisions, the Senior Dentist will be giving up some control.

Above all, the partners must trust each other.

The Junior Dentist must perform Due Diligence with the assistance of their own attorney and CPA. Not only will Due Diligence reveal if the practice is financially sound and influence the purchase price, it will answer another practice philosophy question. Where does each dentist stand on saving and spending money?

Depending on the Senior Dentist's type of practice, the Junior Dentist may buy into the existing entity, or the dentists may form a new partnership. Two common types of partnerships for Dental Practices are corporations and LLCs. Your accountant and/or attorney will explain the benefits, requirements and tax implications of each. Dentists who form an LLC do so because they can avoid personal liability (in a profession where lawsuits are a reality) and the reporting is less stringent than for a corporation.

The Buy-in typically involves four documents:

  • Purchase or Buy-in Agreement: Includes what percentage of the practice is to be purchased and the price, the Junior Dentist's responsibility towards the debts or liabilities of the practice before the Buy-in, loan contingency for Junior Dentist, "Reps and Warranties" of both the Junior and Senior Dentist and Indemnification.
  • Partnership agreement: a "Rulebook" for how the Partners will work together, such as management duties and power, how to distribute profits, how to handle losses, amending the agreement, bringing in another partner, terminating a partner, disability or death, buyout, dissolution and dispute resolution.
  • Employment Agreement: similar to an Associate Employment Agreement, for both Senior and Junior Dentists. Addresses compensation and termination.
  • Restrictive Covenant: remaining partner(s) must have assurance against competition and solicitation if departing partner starts practicing "down the street."

Consult with an attorney/accountant if you have questions about this framework and before signing any contracts.

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What if the Senior Dentist desires to promote an Associate to Partner, based on Sweat Equity?

This is discussed in the next article.

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