If you are a dentist who is planning to sell your dental practice when you retire or as you wind down your practising career (the “Retiring Dentist”), this article is intended for you.
In my experience as a dentist / lawyer providing legal advice to dentists in my law practice, the primary concerns facing Retiring Dentists tend to focus on the sale agreement related to the Retiring Dentist’s dental practice and what can / may happen following the completion of the sale. As such, this article is intended to highlight some key issues on this topic.
Selling Your Dental Practice
On the one hand, selling your dental practice when it is time to retire can be the “simplest” transaction to execute and complete especially when you plan to stop practising altogether or only intend to practice dentistry to help transfer the goodwill of your practice to the purchaser after which you will not practise any longer. From the vendor’s perspective, if you are only interested in obtaining a fair return on your dental practice investment and you have no “skeletons” or “problems” regarding your practice which may complicate the transaction and make it harder to find a purchaser, the proposed sale may be quite attractive for the “right” purchaser.
On the other hand, when a Retiring Dentist sells his or her practice, often the purchaser will be concerned with a number of issues inherent to such transactions, including but not limited to, the type and quality of dentistry performed, the types of patients treated, whether or not assignment of patient benefits is accepted, the amount of accounts receivable, the degree of office computerization, how modern the facility, premises, equipment and supplies are, what creditors exist, what the lease terms and renewal options for the premises are, details regarding any associate dentists and dental hygienists working at your practice, the future income potential of the practice and a multitude of other issues all beyond the scope of this article.
Here are some suggested risk management tips to consider in order to try and avoid legal pitfalls confronting the Retiring Dentist when selling your practice.
With respect to the preparation, execution and closing of the Sale Agreement:
— Be clear on your primary goals and purpose of the transaction. Your tax advisor will advise you on the advantages and disadvantages of how you should sell your practice. If you are a sole practitioner, should you form a professional dentistry corporation first and sell the shares of your corporation or should the transaction be an asset sale including goodwill? Do you want to sell all of your practice or only a portion? If you intend to practice dentistry on a limited basis post-closing, will this be as an associate, cost-sharing “partner” or as a true partner of the purchaser or through some other arrangement? Anticipate that your goals will of course determine the type of purchaser attracted and willing to buy your practice. The purchaser’s interests are intrinsically contrary to yours. Legal complexities can arise depending on how complicated the transaction is being structured. If you are in doubt about what you really want, it is strongly recommend that the prudent Retiring Dentist obtain appropriate business, tax, and legal advice to discuss options and determine what is in your best interests before offering your practice for sale.
— If you are in a true dental partnership or a cost-sharing “partnership,” be sure to read your relevant written contracts to see how you can “retire” from practice. Usually the contract sets out the process to be followed.
— If your primary concern is to receive payment on closing, it may not be in your best interests to accept any financing proposals from the purchaser. If you do agree to deferred payment of the purchase price over time, beware that if post-closing problems occur (see below), the risk of you not receiving future payments increases and the need for litigation in order to enforce payment may be required.
— Make sure your practice financial statements accurately represent the income and expenses of your dental practice. A bonafide purchaser will want to perform due diligence to satisfy himself or herself as to the type of dentistry performed in your practice, the “quality” of your practice and that the future income potential warrants the purchase price being asked.
— Recognize that prudent purchasers may well expect the Sale Agreement to contain appropriate representations, warranties and covenants consistent with what you are saying about your practice and require contract clauses be inserted to remedy any deficiencies the purchaser discovers post-closing. If you want to have as smooth a closing as possible with minimum post-closing problems, the prudent Retiring Dentist will pay attention to such details when negotiating the Sale Agreement.
— Since most purchasers of dental practices will usually require third party financing (eg. from a bank), the Retiring Dentist should be proactive and anticipate what documents the purchaser will require for such purpose and have them ready if possible and in your best interests. For instance, the availability of an appropriate appraisal document and a favourable lease of the premises with excellent renewal options can be key factors in this regard. The Retiring Dentist should seek appropriate legal and other relevant advice on these issues so that an appropriate strategy can be developed when preparing for the sale of your practice.
— If you are the type of dentist who will be upset if you sell your practice to a purchaser who does not “look after” your patients as you did, you may wish to consider what due diligence you wish to perform regarding a prospective purchaser and what options you wish to exercise should you discover information about the purchaser which does not meet your satisfaction. Be aware that Retiring Dentists can be faced with very stressful and ethical concerns when, to their surprise, after the closing of the Sale Agreement, the purchaser starts to change the way patients are being treated which are not to the Retiring Dentist’s liking. Depending on the terms of the Sale Agreement and the relationship of the Retiring Dentist to the purchaser in any post-closing working agreement, the Retiring Dentist may be facing professional liability and legal issues as well.
See Part II of Pitfalls Facing the Retiring Dentist in the Winter issue of DPM.
Rollin M. Matsui received his dental degree from the Faculty of Dentistry, University of Toronto in 1979 and his LL. B. law degree from Osgoode Hall Law School in 1991 and was called to the Ontario Bar in February, 1993. He provides dental-legal lectures to third and fourth year dental students at the Faculty of Dentistry, University of Toronto as well as to dentists in the numerous continuing education courses which he has conducted over the past 16 years. He maintains a full-time law practice in Richmond Hill, ON and a part-time dental practice in Toronto. In his law practice, he primarily acts for dentists in patient disputes, dental insurance claim inquiries / audits, College complaints, College investigations and professional misconduct related matters and provides legal advice regarding business agreements involving dentists in various working relationships. E-mail: lawyer@drrollinmatsui.com Website: www.drrollinmatsui.com
