After signing a letter of intent (LOI), a dental practice buyer must investigate the business, finalize financing, negotiate the purchase agreement, secure the premises, and satisfy regulatory requirements. Each item should be coordinated before closing so that ownership and operations can transfer without avoidable disruption.
A LOI routinely records the proposed price, transaction structure, and expected timeline. Although many terms are nonbinding, provisions addressing confidentiality, exclusivity, and expenses may be enforceable. Buyers should understand those obligations before beginning the next stage.
Can You Legally Own the Dental Practice?
Before proceeding, confirm that the ownership structure complies with state law. Many states restrict non-dentists from owning dental practices or controlling clinical decisions under the corporate practice of dentistry doctrine. If direct ownership is prohibited, the deal may require an MSO or another structure that preserves a licensed dentist’s control over patient care.
Clarifying ownership and your business structure in the early stages is key to avoiding issues with financing, contracts, and any assets being transferred during the sale. Mahan Law provides comprehensive consultations that will help you evaluate your options for ownership structure even prior to the signing of the LOI.
What Due Diligence Should a Dental Practice Buyer Complete?
Due diligence tests the assumptions behind the price and reveals obligations associated with the practice. The scope depends partly on whether you are buying assets or ownership interests in the seller’s entity.
Your review may include:
- Financial statements, tax returns, production reports, and accounts receivable
- Patient demographics, referral sources, and unfinished treatment
- Employee compensation, benefits, policies, and workplace claims
- Equipment, liens, leases, and vendor contracts
- Litigation, board complaints, audits, privacy practices, and regulatory issues
Accurately reviewing your due diligence may justify renegotiating the price, requesting protections, requiring corrective action, or withdrawing when the governing documents permit it.
How Is Financing Finalized Before Closing?
A preliminary lender discussion is not the same as a final loan commitment. The lender will typically review the practice’s cash flow, valuation, patient base, staff, transition plan, and your finances. Loan documents may include a promissory note, security agreement, personal guaranty, and liens against acquired assets. Until the lender issues a final loan commitment and that is signed and accepted, financing is not confirmed.
Financing should typically cover the purchase price and any needed working capital, fees, inventory, related closing costs, improvements, and real estate, if applicable. The purchase agreement should also address what happens if financing is denied or unacceptable conditions are imposed.
What Contracts Must Be Negotiated?
The purchase agreement identifies the assets being purchased, assumed liabilities (if any), closing conditions, and remedies if the deal does not close. It may also address accounts receivable, prepaid services, warranties, indemnification, restrictive covenants, employees, and the seller’s transition assistance. The transaction may also require a bill of sale, assignment and assumption agreements, and an employment or consulting agreement if the seller remains during the transition.
In an asset acquisition, the buyer and seller generally report the agreed allocation of the purchase price to the IRS using Form 8594. Your attorney and accountant should coordinate this allocation because it can affect the tax treatment of equipment, goodwill, and other assets.
Does the Office Lease Need Landlord Approval?
If the seller leases the office, the landlord may need to approve an assignment, or you may need to negotiate a new lease.
Review the lease term, renewal options, rent increases, permitted use, maintenance duties, guaranty, and responsibility for improvements. The term should support the acquisition loan, and the lender may require an agreement protecting its rights in financed equipment.
If real estate is included in the purchase, title, surveys, environmental concerns, financing, and property documents will require separate review.
Which Approvals and Transition Items Must Be Ready?
Because state requirements differ, determine whether the transition requires:
- Business formation, tax registration, insurance, and banking arrangements
- Professional or facility licenses
- Controlled-substance registrations
- Payer credentialing or change-of-ownership notices
- Patient and employee transition communications
Credentialing can take time, so delays may affect when you can bill under the new ownership.
What Happens at and After Closing?
At closing, the parties sign the transfer documents, loan proceeds are released, liens are addressed, and the buyer receives the assets, records, passwords, keys, contracts, and other items listed in the closing checklist.
Post-closing work may include collecting assigned receivables, completing tax filings, notifying vendors, managing employee onboarding, and enforcing transition obligations. Some purchase-price adjustments or indemnification duties may continue well after the closing date. These are all items that Mahan Law will assist you with to ensure your practice is set up for success long after the closing date.
Build the Legal Work Into Your Acquisition Timeline
A dental acquisition depends on several moving parts reaching completion together. Mahan Dental Law helps buyers review LOIs, conduct due diligence, negotiate acquisition and real estate documents, coordinate financing, and prepare for closing. Contact us to discuss your proposed dental practice purchase.
