Matt Dickstein
Business Attorney
Making legal matters easy and economical for your business.

39488 Stevenson Place #100, Fremont, CA 94539
510-796-9144. mattdickstein@hotmail.com. mattdickstein.com

Business Transactions • Corporations & LLCs • Real Estate Ventures
Medical Practices • Franchise Law


HOME
中文

AREAS OF PRACTICE

MATT'S NEWSLETTERS

ABOUT MATT

 

Lawyer for Dentists, Dental Corporations and Group Dental Practices

By Matt Dickstein

Shareholder buy-sell agreements for dental corporations

Thank you for finding my suite of articles on the basic corporate, business and contract law issues for dental corporations and group dental practices in California.  The articles in this suite are:

 

Overview
Should you incorporate your dental practice?
Legal compliance checklist for a dental corporation
Classifying a dentist as an employee or contractor
Dentist employment and independent contractor agreements
Compensation structures for group dental practices
Shareholder buy-sell agreements for dental corporations     ◄You are here
May a dentist compete against his or her former practice?
Stealing employees
Bringing a new dentist into a dental practice
Buy-in and buy-out of a dentist to a dental group
Buying and selling a dental practice
Preparing to sell a solo dental practice
Merging dental practices
Leases for dental offices
How a non-licensed person works with a dental practice; administrative / management service companies
Leaving a dental practice / closing a dental practice

In this article I explain shareholder buy-sell agreements for dentists and dental corporations.  A buy-sell agreement (also called a shareholders agreement) protects the corporation from the dentist / shareholders, specifically their death, loss of license, disability and dispute.

Freeloaders and Malcontents

A dental practice needs a buy-sell agreement because (1) California law requires buy-sell provisions in the case of a dentist’s death or loss of license, and (2) the reality of group practice demands a resolution to common problems, specifically, dentists (like all of us) bicker, lose interest in the practice, go away, die, get run over by trucks etc.  You need resolution for all of these scenarios.

Sometimes a dentist gets tired and stops putting time into the practice.  The dentist becomes a freeloader, and you must cut him or her out of the compensation structure.  Sometimes a dentist is such a malcontent that you must be rid of him or her.  Or a dentist might die or lose his or her license, in which case California law requires that you buy-back the dentist’s shares in the dental corporation.  In all these cases and other cases, the practice needs a structure for the orderly and fair removal of dentists.

See my prior article - Compensation structures for group dental practices for a definition of freeloader and malcontent.

If you don't have a good buy-sell agreement, usually the only way to resolve shareholder disputes is through the courts; see my article Using Involuntary Dissolution to Resolve Shareholder & Partner Disputes.

The Economic Divorce

Enter the buy-sell agreement.  When changes among the dentists put the practice in danger, the buy-sell agreement gives a fair resolution.  I call this the economic divorce – if the practice cannot survive a particular dentist, the buy-sell agreement gets you a divorce on terms that are fair to everyone.

4 D's

Dentist buy-sell involves what I call the 4 D’s– death, disqualification, disability and dispute.

Death and Disqualification.  Under California law applicable to dental corporations, if a dentist dies or becomes disqualified (that is, loses his or her license), the corporation must buy-back the dentist’s shares.  Usually you pay a death buy-back in one lump-sum using the proceeds of life insurance.

Disability.  Similar to death (except without the finality) if a dentist becomes disabled, the dental corporation can buy-back his or her shares.  The practice can pay a disability buy-back using a promissory note, or if cash-flow is sufficient to fund a disability policy, using the proceeds of disability insurance.

Disputes.  Sometimes two dentists just can’t get along.  To deal with this situation, you use “shotgun” procedures.  This means that, between the two warring dentists, the first offers to buy out the second, and the second has the choice, either be bought out or turn around and buy out the first on identical terms (i.e. I cut, you choose).  Either way, a price is fixed for the buy-out, and one of the warring dentists leaves the practice group.

Buy-Out Price

The buy-out price is crucial.  A high buy-out price gives the exiting dentist a windfall.  A low buy-out price is unfair and leads to litigation.  The trick is finding a procedure that ensures a fair price – for example, using a neutral appraisal process to fix a price.  A dental practice also can use an accounting formula to fix the buy-out price.

For more on buy-outs, read Buy-in and buy-out of a dentist to a dental group.

Wildcard - Personal Guaranties

As a final note, be careful about personal guaranties.  These are the wild cards in an exit structure.  An effective exit structure must fairly compensate and/or protect dentists for their guaranties.

Non-Competition Clauses

To learn about non-competition clauses for dentists, see my next article, May a dentist compete against his or her former practice? and see, Stealing employees.

I’ve tried to make buy-sell easy in this article.  But that doesn’t mean you can do it yourself.  Get a competent business attorney to help you.

Call me to schedule a legal consultation: 510-796-9144


Matt Dickstein, Business Attorney - 39488 Stevenson Place, Fremont CA 94539
(510) 796-9144      mattdickstein@hotmail.com     www.mattdickstein.com Google

Business & Corporate (LLC) Lawyer   •  Lawyer for Professional Practices   •  Franchise Lawyer      Real Estate Lawyer

Newsletters      Legal Articles Library   •   Site Map

Providing business legal services in Northern and Southern California, including San Francisco,

San Jose, Walnut Creek, Oakland, Sacramento, Los Angeles, San Diego