Dentists may decide to allow one or more dental associates to buy into the practice when they want to sell their practices. Instead of selling the practice quickly, associate buy-ins allow the owner to keep receiving an income from the practice. This process also allows for an easier and slower transition to the new owner.
Working with a skilled dental practice attorney is beneficial for those considering a phased associate buy-in over time. The attorneys at Mahan Dental Law have extensive experience representing associates and dental practices in the buy-in process. Contact Mahan Dental Law to schedule an initial consultation and learn how we can protect you and your interests by providing excellent and effective legal counsel.
The Advantages of Dental Associate Buy-Ins for Owners
Whether you are an associate considering buying into a practice or an owner who wants to phase out their ownership, it’s important to understand the benefits and drawbacks of a dental associate’s buy-in. From an owner’s perspective, a dental associate buy-in can help you transition out of ownership smoothly. Instead of merely hiring an employee, your newly-hired associate will be able to become a partial owner. A more junior dentist will have an investment in the practice and may be more likely to work harder for its success in growth.
Allowing an associate to buy into the practice can also help you protect your practice in the event of a disability or death. Most partnership agreements require the partner who survives to buy out the other partner, ensuring the practice will continue. Without this arrangement, the practice you worked so hard to help thrive may have to close its doors without your family receiving compensation for its value.
The Advantages of Dental Associate Buy-Ins for Associates
Associate buy-ins can also be excellent opportunities for junior dentists. The associate can share the benefits of owning a practice and gain experience in practice management. Under the mentorship of a more experienced dentist, associates can learn real-world skills for the business side of dental practices, skills that aren’t taught in dental school. At the same time, the associate doesn’t have to take on all of the risks of business ownership alone.
Disadvantages of Associate Buy-Ins
Some disadvantages come with an associate buy-in. A buy-in is a serious commitment by the senior and junior dentists. It requires open communication, mutual respect, and a thorough and legally valid purchase agreement. It’s crucial that both parties make their expectations clear during the negotiation stage and that the purchase agreement accurately reflects their negotiated terms. When both parties are unwilling to negotiate in good faith and work through issues that arise, it may be better for the associate to remain an employee and not a partial owner in the dental practice.
Preparing a Purchase Agreement
Working with an experienced attorney to prepare your partnership agreement will help you protect yourself. Doing so will also increase the likelihood that the buy-in will be successful. Preparation is critical when it comes to purchasing agreements. If you are the associate considering buying into the practice, an attorney can help you do due diligence into the dental practice so you understand any potential red flags.
For dental practice owners, an attorney can help you protect your company and ensure that the associate will be obligated to fulfill his or her duties to the practice. A comprehensive purchase agreement will include many different provisions, such as:
- Voting rights
- Withdrawal provisions
- Management responsibilities
- Personal guarantee requirements
- Matters that require unanimous consent among partners
- Drag-along rights
- Required chairside responsibilities
- Deadlock provisions
An attorney can help you consider all of these issues. If you disagree with your future partner, an attorney can negotiate with the other party. When considering these issues, remember that you will be taking on a potentially long-term working relationship. Understanding the challenges associated with dental practice can help you make an informed decision.
The Associate Buy-in Process for Dental Practices
In most associate buy-in situations, the associate buys a minority interest in the dental practice which may be between 10 and 20%. Allowing the associate to purchase a smaller interest in the company enables both parties to have a trial period. If the arrangement isn’t working successfully, it’s easier to end a partnership that only involves a small percentage of the practice instead of half or most of the practice.
If the buy-in goes successfully, the associate may decide to purchase the remaining interest of the senior dentist. For example, when the senior dentist decides to retire, the junior associate may decide to purchase his or her remaining interest. The disability or death of the senior dentist could also lead to the junior associate purchasing the remaining ownership interest.
The Benefits of Working with an Attorney
At Mahan Dental Law, we have decades of experience providing legal representation for associate buy-in services. We work with owners and associates to help them become fully aware of any conflicts and issues that could arise. We understand that every transaction is unique, and we take the time to understand our client’s needs and goals. We provide the legal advice needed for our clients to be fully aware of the duties, responsibilities, and benefits of a buy-in.
Our attorneys can help you draft a purchase agreement that is legally valid, thorough, and addresses every aspect of the purchase. We can also review existing purchase agreements to identify any red flags and negotiate more favorable terms for our client.
Discuss Your Case with a Dental Practice Attorney
The attorneys at Mahan Dental Law have an in-depth understanding of legal matters related to dental practices. Many of our attorneys are dentists themselves. If you are considering pursuing an associate buy-in, we are prepared to help you navigate the purchase while protecting your rights. Don’t hesitate to contact the experienced attorneys at Mahan Dental Law to schedule an initial consultation. We will answer any questions you have and help you understand your options.