Have you considered sharing the ownership of a dental practice with another dentist? There can be a lot of advantages to bringing in other shareholders in a practice. To make sure you reap these full benefits as well as protecting the practice and yourself, you are going to want to have a solid shareholder agreement in place between you and your co-owners. A shareholder agreement can encompass everything from business operations to what happens if an owner wants to leave the practice. When done right, a shareholder agreement can lay a strong foundation for a practice, the shareholder relationship, and avoid unnecessary conflicts that might otherwise pop up along the way.
Shareholder Agreements in Dental Practices
A shareholder agreement is more than an agreement. It is a legally binding contract established between the owners of a corporation. In the most basic sense, a shareholder agreement will detail the roles, rights, and responsibilities of the shareholders. It will act as a guidepost as to how the shareholder relationship will go, what it will look like, and what should be done in the event of conflict or if a shareholder wants to leave the corporation.
Shareholder agreements are put in place to manage expectations and protect shareholder interests. Such agreements also are put in place to help prevent disputes from arising and, should a dispute arise nonetheless, the shareholder agreement should set forth how to address them. It is best to put a shareholder agreement in place at the start of establishing a dental practice. Once things are up and running, such agreements can fall by the wayside. Get them in place from the start and reap the continuous benefits from there.
While shareholder agreements will look different in various businesses and across industries and businesses of different sizes, there are certain you are likely to see in such an agreement. For instance, a shareholder agreement should address:
- Ownership rights: How is ownership of the practice split among the shareholders? What are the terms of each owner’s investment in the practice? How many shares does each owner hold?
- Profit sharing: When will profits be distributed? How often will profits be distributed? How will profits be distributed between the shareholders?
- Practice operations: What are the decision-making procedures of the practice? How are daily operations in the practice managed? What decisions regarding the practice will require a vote of the shareholders?
- Issuance of shares: When can a new shareholder be brought into the practice?
- Transfer of shares: Can a shareholder sell all of their shares? Can a shareholder sell a portion of their shares? How are shares valued? Will a shareholder need approval from the other shareholders prior to selling their own shares?
A shareholder agreement should also include a dispute resolution clause that dictates how disputes will be addressed should they arise. Additionally, since dental practices and other businesses do not go on in perpetuity, there should be a provision for how the practice can be terminated.