Dental Practice Sales
FAQs (National)

Dental Law - Practice Sales
Frequently Asked Questions

Disclaimer: No attorney client privilege is created by my posting of this information. Law changes frequently and varies by jurisdiction. This information is general in nature, may not apply to different or additional circumstances, and does not substitute for legal advice from a state licensed attorney. Please see your state licensed attorney for thorough and reliable treatment of the subject.

Q: I have completed some practices sales in my day, and the broker provided me a standard form contract. Why do I need a dental transition attorney to help me with my transaction?

Although dentists and brokers are intelligent and well trained in their fields, they do not have the legal training, continuing education and experience necessary to safely complete your transaction. It isn't so much the contract terms that are a problem, but the deeper implications of those terms, and the contract terms that are NOT in the document. Furthermore, THERE IS NO SUCH THING AS A STANDARD FORM CONTRACT; every document will be for the benefit of the party who drafted it. Finally, just as medical advances change treatment plans, legal developments change contract strategies. I have written an article on these and related issues in the June 2008 California Dental Association Journal.

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Q: When in the sale process should I hire you as my attorney on a dental practice sale or purchase?

Your primary goals in hiring an attorney are to ensure the sales documents are completed properly and that the sale closes on time, but at the same time not to undergo expenses until you are relatively certain the sale can be completed. Unfortunately, waiting to hire an attorney when the sale is certain will frequently prevent the sale from closing on time.

I generally recommend that you hire me to complete/review the Letter of Intent before it is signed. That Letter will, or should, contain specific deadlines for the Buyer to complete the loan application, obtain loan approval, and complete due diligence review of the practice, as well as many other important issues. Once the Letter of Intent is signed, it becomes difficult to change those terms in the full contract. Using a Letter of Intent also provides you attorney representation, at less than the full practice sale price, to confirm the more important terms: price, method of payment, non-competition provisions, transition provisions, and deadlines.

If the letter of intent has been signed, I tend to recommend that buyers wait to hire me until the buyer has obtained loan approval and has completed the due diligence review of the practice. For sellers, I am more ambivalent - their legal work can more easily be reused for a new buyer (saving attorney fees) so I can also be hired immediately after the letter of intent is signed. Significant contract drafting issues and landlord negotiations also need completion, and these can take a significant amount of time. Buyers and sellers both need to KEEP IN MIND that waiting until the loan approval and due diligence issues are completed before hiring me could significantly delay the closing, resulting in lost loan approvals, missed vacations or moves, or circumstance changes that prompt buyer OR seller to refuse to proceed with the sale. In my experience, it is rare for a sale to not have at least one week worth of unexpected delays - and I have seen one delay of six months (lender approval issues and a selling dentist who died during the process).

The main source of delay, if any, tends to be the landlord. There may be existing lease terms that the buyer will need amended before the landlord even KNOWS about the proposed sale. The seller may want the negotiate the lease assignment to include specific seller protections (infrequently granted). Keep in mind that the landlord has no obligation to rush the sale to completion, and absentee landlords or committee members can cause even a friendly assignment scenario to drag on for over a month. The other party's attorney, non-dental industry lenders/ escrow companies, and even the client himself (by not responding to attorney/lender requests in complete and timely fashion) can cause significant delays.

Please consider carefully the date you hire me to start work on your sale or purchase. Keep in mind that the attorney fee is a relatively small percentage of the total practice value, and delays can cause the sale to fail.

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Q: Is joint representation for a practice purchase advisable?

Joint representation is never advisable if one or the other potential client is uncomfortable with joint representation. If the parties are comfortable with the idea, joint legal representation is allowed under many state's laws if the clients have received proper disclosure of the potential risks (known and unknown) and have agreed to do so before joint representation begins. The question then becomes is joint representation advisable in your particular situation?

Practice sales have significant opportunities for conflicting issues: non-competition, retreatment, representations, and tax allocations being first among many. In fact, many conflicts may not appear until negotiations have progressed; conflicts can even first appear after the sale has closed! Therefore, I do not consider it generally advisable for a buyer and seller to be jointly represented. However, I believe joint representation can work well when (1) the seller is retiring, (2) the sale is to the seller's child or a 10 year (or greater) associate, and (3) both sides express a genuine desire that the contracts be drafted in a fair and nonpartisan manner. In these cases, a significant level of trust and understanding has developed during the relationship, and the threat of renewed competition is almost non-existent. In this case, an experienced dental transition attorney will be able to propose a set of balanced and pragmatic contracts. Even in this situation, the two sides should discuss the tax allocation with their respective CPAs before coming to a final decision on that issue. On a related note, joint broker representation has additional, greater pitfalls than joint legal representation - for details, see my article on Dual Representation Brokers.

Partnerships and corporations tend to have fewer conflict issues, since operations and procedures in each will apply equally to the partners or shareholders, and attorneys tend to represent the organization only in this scenario to avoid a literal conflict. However, some clients will choose to hire separate counsel in addition to the joint counsel, particularly if the client will hold a minority interest in the organization and thus less able to prevent detrimental changes.

I do not recommend joint counsel for stand-alone independent contractor agreements. There are too many conflicting issues, and too much room for future disagreement, to consider joint counsel a viable option.

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Q: When, in the process of buying a dental practice, should I form a corporation/PLLC?

There are reasons to form a corporation/PLLC both either before and after buying the dental practice. Reasons to do so beforehand include: (1) preventing personal liability from the practice while you are unincorporated and on contracts signed in your personal name, (2) avoiding cost and delay of completing the name change on letterhead, signage, bank accounts and insurance panels. Reasons to incorporate after the purchase include (3) you will receive no significant or immediate limited liability or tax benefits by incorporating, (4) your practice purchase loan will be your personal debt, and therefore can be treated as "basis" for the purpose of deducting losses in an S corporation. The right answer may even be to incorporate before the purchase, but purchase the practice in your individual name and immediately assign the practice to your new corporation/PLLC. However, your individual circumstances should be discussed with your CPA before making this final decision.

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Q: What should I name my professional corporation?

California | Texas | Tennessee: You must use some corporate designation as part of the corporate name; inclusion of the dentist's professional name is suggested but not required. See Tennessee Code §48-14-101(a) and §48-101-609.

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Q: May a dental practice use a fictitious business name or trade name?

Probably, but not always - the use of a fictitious business name for dental practices is primarily determined by state law. IMPORTANT: Before spending money on your proposed fictitious business name, confirm that the name is protectable and available: please see my Avvo Legal Guide: Safely Choosing a Tradename for your Business. In general, the first to actually use a name in the relevant locale has rights in that locale. Federal trademark is a major exception: once the filing is made, no new use of the name in the same business classification may be made anywhere in the United States.

California | Texas | Tennessee: Incorporated practices may use a fictitious business name if they comply with certain requirements. See Tennessee Code §48-14-101(d).

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Q: I have been approached by a non-dentist investor who wants to form a Management Service Organization (MSO) to own a dental office and pay me a per-diem rate for my services. Is this legal?

The law here is very state specific, though the tendency is to allow non-dentist ownership of dental practices with specific limitations. Some states ban MSOs completely, some allow variations (requiring limited participation, other dental/medical licensing), and some allow their existence but ban enforcement of their contracts.

California | Texas | Tennessee: It appears not, subject to further research. Non-dentists are not permitted to own, maintain or operate a dental practice, or receive payments based on a share practice revenue or profitability. See Rules of Tennessee Board of Dentistry §0460-01-.08(1)(b) and §0460-01-.12(2).

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Q: May I pay commmissions or referral fees to dentists or non-dentists for patient referrals?

It is extremely unlikely that referral fees are permitted in your state. Of special note, coupon advertisers that are paid per patient treated (or each patient buying a coupon) will almost certainly be considered a referral fee once the dental boards catch up to that reality. Coupon advertisers that are paid for mailings, not patients treated, are unlikely to be considered a violation.

California | Texas | Tennessee: A dentist may not pay anyone for patient referrals. The intent of this rule is to prevent "cappers" (pardon the expression) from drumming up business and being paid a fee for bringing in a patient. I believe that traditional marketing services (print, radio or TV advertisements, mass mailings, publicly available coupons) are allowed by this rule. See Rules of Tennessee Board of Dentistry §0460-01-.12.

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