Lawyer for Dentists, Dental
Corporations and Group Dental Practices
By Matt Dickstein
Bringing a new partner into a dental practice
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:
This article gives an outline of how to
bring a new dentist into a dental practice. I go from
common sense to legal advice, from the dentist’s purchase of
ownership to the parties’ exit strategy and unwinding of the
relationship.
Culture Fit
Before anything else, think hard
whether the new dentist will fit in with the practice’s
culture. The primary risk is that the existing group and
the new dentist might not fit together. For example, the
group and the dentist might differ on the required coverage
hours or the handling of employees.
Compensation
A dental group’s compensation structure is the most
important part of its culture. The hardest thing to get
right and keep right is a group’s compensation structure.
Every group has its own compensation structure ranging from
“eat what you kill” to equal shares. I
talk about common factors in fixing compensation in two
prior articles -
Compensation structures for group dental practices
Dentist
employment agreements and independent contractor agreements.
Buying into the
Practice
After salary, think ownership. Frequently the
practice asks the dentist to wait a period of time (e.g. one
year) before the parties discuss the buy-in. This ensures
that the new dentist fits-in before buying-in. Dentist
employment agreements sometimes have clauses for the
dentist’s purchase of ownership in the practice. Usually
the clauses are vague and non-binding, and only express the
parties’ expectations on the subject. If the dentist’s
buy-in is a material part of the deal, however, specify
these deal terms:
- The ownership percentage that the dentist
will get
- The purchase price
- The period over which the dentist will pay the
purchase price
- The extent of the dentist's participation in
control decisions for the practice, e.g. is the
dentist on the board of directors?
Corporate Structure
The new dentist must buy into something, and
usually that something is a dental corporation. The dental
corporation’s structure should protect both the incoming
dentist and the existing group. You need to shield each
dentist from two kinds of liabilities: (1) liabilities
arising from the acts of the other dentists in the group,
and (2) general liabilities of the dental corporation (such
as real property and equipment leases, etc.). At the same
time, the corporate structure must comply, to the letter,
with the laws and regulations that govern dentists.
Group Liabilities
If the existing dentists are liable for group debts,
be clear about the liabilities for which the new dentist
will become responsible. Will the new dentist guarantee
existing loans or leases? Will the new dentist step into a
capital call?
Exit Strategy
Now that you’ve structured the entry of
the new dentist, structure the exit. The existing dentists
and the incoming dentist all need an exit strategy. The
most common exit is the termination of the dentist’s
employment plus the buy-back of his or her equity. The
practice also might give severance pay to the departing
dentist.
This is where a buy/sell agreement comes
in. A buy/sell agreement is essentially an agreement for
exiting a practice. A buy/sell agreement works like this –
the agreement names certain trigger events for buy-back
(e.g. termination of employment, death) then it either
requires or permits the buy-back of the dentist’s equity on
the occurrence of that specific event. Then the agreement
sets a price for the buy-back. For more on buy-sell
agreements for a dentist practice, see
Shareholder
buy-sell agreements for dental corporations.
This article only gives a short roadmap
about bringing a new dentist into a dental practice.
There is a lot more to this subject than introduced
here. Before you do anything, get competent legal counsel
to help you.
Call me to schedule a
legal consultation: 510-796-9144
| 