Dental Practice Buy Sell Agreement
Once you have established a stable dental practice with a partner or a few shareholders, your mind should turn to plans for what to do if one of you wants out of the business. It is natural to expect that either you will want to buy-out our partners or, depending on the circumstances, you will want to sell to one of your partners. While this may seem like
dental practice buy sell agreement
something you will consider in the future, life can take unexpected turns and you need to be prepared for unanticipated situations such as a sudden death or disability. The best way to prepare yourself and your business for this eventuality is through a buy-sell agreement.
When you consider what you need to do to protect your interests in your business, a buy-sell agreement seems like the best decision you could make. With a buy-sell agreement, you provide funds to keep your business going, even when a partner or shareholder leaves the business unexpectedly.
Perhaps one of the most difficult items to include in the buy-sell agreement is the buy-out price. You must consider whether the price will be determined by appraisal or some predetermined formula. The partners will need to agree whether the price is determined by ownership percentage or by percentage of production. You will also want to consider if the price will be different for retirement vs. withdrawal before retirement? Sometimes we see a reduction in the price if one of the partners withdraws without appropriate notice or before a certain number of years have passed.
Your agreement should be specific as to how accounts receivable and the debts of the practice will be handled at the time of the buyout. Additionally, if you have vehicles that are owned by the practice, the agreement should discuss how these items will be distributed.
Generally, your agreement should be specific as to the amount of notice that is required for normal retirement or withdrawal from the practice. Depending on where you practice, you may need one to two years to find a replacement for your partner. This time increases if you are planning on the new associate buying in as a partner.
Most buy-sell agreements require the partner who has sold his or her interest to sign a reasonable restrictive covenant as a condition of the sale. You will want to weigh your plans carefully before agreeing to the terms of a covenant. You may also wish to negotiate the option to stay employed at the practice after the buy-out.
A buy-out agreement is a legal document that answers these very important questions. It addresses one or more partners leaving your practice long before anyone starts thinking about retirement or selling their portion of the practice. It should also be in place long before a partner becomes ill or incapacitated. Having this document now will address many vital questions before they need to be answered, giving everyone a system to use when changes in the partnership must occur.
A buy-out agreement or buy-sell agreement is a document that addresses what will happen when someone has to or wants to leave your dental practice. There is often a "triggering event' that sets certain actions in motion. Common triggering events include things like:
In this type of agreement, the other partners agree to purchase the exiting partner's practice shares. This document is very helpful because it addresses problems with families having to deal with assets in a dental practice that they may not want or know how to handle. It also addresses how voluntary retirements occur so that the process is fair for everyone involved.
This type of agreement is used in combination with a process that sets out that shares will go back to the practice, and that they will be divided among the remaining partners using a particular method.
An entity-purchase agreement functions very much like a cross-purchase agreement. However, instead of each individual partner maintaining the life insurance, the business purchases the insurance. The benefit amount is equal to the partner's share in the business. The practice then gets the life insurance payout upon the partner's death, and the practice uses that money to buy the deceased partner's shares from his or her estate.
Buy-out or buy-sell agreements have the advantage of being very flexible. The partners can decide what kind of plan they want to use and which processes makes sense for their buy-out. However, you should ensure that you address some very basic terms and conditions in the agreement.
If the partner is leaving the practice voluntarily or due to retirement, he or she will likely know in advance when they plan to make this type of move. How much notice does the dental practice need to adjust for their departure? In some cases, finding a replacement partner can be extremely difficult and time-consuming. It can take years, depending on the location of your practice.
Suppose you are allowing the partner to sell his or her interest in the practice. In that case, you may also want to specifically restrict them from competing with your practice or soliciting clients away from your dental practice. While these covenants are required to be reasonable, this is something you want to think about in the context of voluntarily or forced retirements or if a partner leaves the firm before retirement.
In situations where a partner leaves, whether it is a sudden death or a forced retirement, emotions and tensions may be high. Instead of acting on impulse or in a way that would not be fair to the remaining partners or the deceased or disabled partner's family, your buy-out or buy-sell agreement creates a process that everyone can reference and rely upon in a difficult situation.
If you do not create a buy-out agreement, you also put the remaining partners at risk. If there is no plan for death or sudden disability, the entire partnership could be in jeopardy. Your dental practice may not have the liquid assets to buy-out a partner, which can create a whole slew of problems with the deceased or disabled partner's family or other loved ones.
Determining the practice's value can be challenging, but it is a critical first step in the buy-out agreement process. You can set the buy-out price ahead of time, with the option to make periodic adjustments. Alternatively, you can create a process by which the practice will be valued at the time of the triggering event.
Determining the buy-out terms and how to pay for the buy-out can feel complicated and overwhelming, but it is very important for the long-term health of your dental practice. The above guidelines will help you engage in the critical-thinking process to develop this document.
If you are considering entering a business partnership, you should first consult a dental lawyer. They will walk you through the documents you'll absolutely need to protect yourself if your partnership goes south in the future, including a buy-out agreement. If you have any questions, please contact Ali Oromchian at Dental & Medical Counsel at 925-999-8200 or contact us below for a complimentary consultation.
A buy/sell agreement, funded with life insurance (or disability buy/sell insurance, or both), is critical for any dental practice that is owned in partnership with another individual. What the agreement does, first and foremost, is to establish some concrete steps as to what would happen in the event of the death or disability of a partner. What the insurance does, is fund the agreement once it is triggered by death or disability.
Undoubtedly the death or disability of a partner will be emotionally trying for the surviving partner(s), their families, and the practice. What a buy agreement does is to ease the financial stress that would exacerbate an already trying situation.
Having a solid agreement in place is critical for any partnership and having the appropriate insurances to fund the agreement it may save you, your partner, and your families huge headaches in the long run. The agreement is put into place when all partners are alive and well. Each doctor is insured under a separate policy: both life and buy/sell disability insurance. Everyone agrees to everything. As obvious as this may seem, having all these questions settled ahead of time provides for ease later.
At Treloar & Heisel, our experienced financial professionals have been working with dentists and specialists for decades to help them ensure the continuity of their practice. By finding the right insurance policy to fund your buy/sell agreement, everyone involved with your practice can have peace of mind for the future.
This kind of policy may be challenging to discuss with your partners and even harder to discuss with your family. However, it can help ensure the continued life of your dental practice while reducing the stress of your passing among those in your life.
During a dental practice transition, a purchase agreement is put into place to outline the specifics of the business transaction. In the case of a buy-in or special consideration, a stock agreement is used; otherwise, an asset purchase agreement is put in place. In any event, here are the elements that should be included in a purchase agreement for a dental practice transition.
Simply put, asset allocation is the way the purchase price is divided up as a negotiation between the buyer and seller. This especially comes into play when the selling doctor is staying on to practice during the transition.
Many dentists dream of owning their practice, but the reality of buying and owning a dental practice is often more complicated than many anticipate. If you want to buy dental practices and turn your passion for dentistry into a successful business, you'll want to make sure you're taking the time to review all the pros and cons of purchasing a dental practice.
An advisory team is a group of professionals with experience in the dental industry who can help you navigate the buying process. They can help you understand the ins and outs of the dental industry and help you with your decision-making. More importantly, they can help you with important tasks, such as finding the right practice/location, proper funding for the purchase, and help you avoid any legal issues along the way. 041b061a72