Dental Partnership Agreement
A dental partnership agreement occurs when two or more dentists, act as co-owners of a dental practice, for profit. Dentists must be very careful because unlike a professional corporation, a dental partnership can be entered into on accident. Simply working together and sharing expenses and profits can be interpreted as dentists being partners.
Accidentally entering into a dental partnership agreement is problematic. One of the major drawbacks of entering into a dental partners dental partnership agreement is that general partnerships have unlimited liability to each of its partners. This means that if your partner incurs a debt or judgment for malpractice while they are acting on behalf of the partnership, if you are found to be a partner, you will be responsible for repaying that obligation. To overcome this major drawback, partners should draft a clear dental partnership agreement with an indemnity provision.
Additionally, the recommendation is that each partner of the dental partnership agreement form a professional cooperation. This way, your corporation will still protect your personal assets if you incur liability due to the partnership.
Suitable partners in a dental partnership agreement
Dentists can take ownership in a dental partnership agreement as an individual or they can set up a professional corporation. Currently, some states like California does not allow dentists to operate as an LLC. The general rule governing dental partnership agreements is that only a dentist can own and operate a dental practice. However, there are a few minor exceptions. One exception is by setting up a Dental Support Organization (DSO). Under a DSO a non-dentist works with a dentist to manage the business (non-clinical) aspects of the practice.
This allows the dentist to fully focus on the clinical side of the practice and leave the business operation to his or her partner to handle. In addition, there are also opportunities for dental hygienists, dental assistants, physicians, or surgeons to have a minority equity stake in dental practice.
Benefits of a dental partnership agreement
There are several benefits to partnering with another dentist:
- Your partner can cover the overhead and manage the business when you are away. (Everyone needs a vacation from time to time);
- Your partner can have strengths where you have weaknesses;
- Partners can help keep each other motivated to grow the business and generate new ideas;
- Partners can rely on each other for advice on unfamiliar or unusual treatment needs;
- For a new dentist, having an experienced dental partner who can act as a mentor is priceless;
- For an experienced dentist, having a young, eager dental partner to take an emergency call and bring new energy and technology into the practice is priceless;
- The practice as a whole can grow faster with two sources of capital investment.
These are only a few reasons why dentists benefit from finding a partner to establish a dental partnership agreement.
How to choose a name for a dental partnership agreement
Unlike naming a regular business or professional corporation, the Secretaries of State in several states like California do not place any restrictions on naming a dental partnership agreement. According to the Dental Board of California, any dentist “who is practicing or will practice dentistry, under a false, assumed fictitious name, either as an individual, firm, corporation or otherwise, if he/she has ownership in the practice” must apply for a fictitious business name. Put simply, any name that does not include the last name of each partner, or implies that there are additional owners, is a fictitious business name.
The dental partnership agreement should apply for a fictitious business name through the dental board and again through the county or city where the practice is located. The cost to apply through the dental board in 2018 is either $650 or $325 depending on when your dental license expires.
Is having a dental partnership agreement mandatory?
A dental partnership agreement can be formed inadvertently through the actions of the partners. When this happens, the laws of states dictate the rights and responsibilities of the partners by default. To avoid abiding by the default rules of states, it is advised that all dentists establish an agreement.
A dental partnership agreement can be oral, written, or implied, among the partner dentists. If the agreement does not cover any part of the relationship between the dentists, then California Law will step in to manage that part of the relationship. That is why we feel it is imperative to have a comprehensive written dental partnership agreement.
While an oral or implied dental partnership agreements is technically legal, they are a terrible idea. If the agreement is not put into writing, the law looks to the language and conduct of the parties to determine the partner’s intentions.
As you can imagine, there are usually misunderstandings that will likely escalate into ligation. When a dispute arises having a well-crafted dental partnership agreement can be the difference in shutting down the practice, a gigantic, expensive, legal battle, or continuing in prosperity.
Reasons for a well-drafted written dental partnership agreement
- Clarify each dental partner’s rights and obligations (prior to starting);
- Eliminate any ambiguities about how the practice should be run;
- Predetermine how the business will be valued if one partner decides to exit;
- Predetermine the rights of a partner to kick another partner out, or add another partner to the partnership.
Specific terms to include in a dental partnership agreement
- Identify the business purpose of the agreement
The agreement should cover what type of business the partnership will be conducting. It may be wise to define the purpose of the dental partnership with specificity rather than a broad statement such as “Dentistry and any other legal business purpose”. Specificity is also beneficial because each partner is an agent to the partnership. It also binds the partnership to any activities that fall under the partnership’s purpose. If the purpose is too broad, the partnership could be liable for a partner’s acts unrelated to dentistry or the practice.
The purpose provision will also be important in situations where partners are required to devote a certain amount of time to the partnership’s business. The partner may have to present certain business opportunities to the partnership or not to compete with the partnership.
- covenants, powers rights, and duties of each partner dentist
This provision will lay out what each partner is responsible for. A well-drafted partnership agreement will help to prevent deadlock. It will allow the dental partners to enter into contracts and pay bills on behalf of the partnership. It may also dictate limitations placed on each partner, such as engaging in work for another dental practice.
- Patient records of a dental partnership agreement
A well-drafted agreement should state who will be the custodian of the patient records. It should also discuss the partner’s duties to comply with all HIPAA requirements and state and federal confidentiality rules and regulations.
- Capital contributions and share of profits and losses & distributions
In the early stages of negotiating a partnership agreement, the partners should agree on how much capital each will invest to start the partnership. Along with the initial capital investment, the partners should agree on their ownership percentages. It is common, but not mandatory, to have the ownership percentage correlate to the amount of the partner’s capital contribution.
The partners must agree on when they will be required to contribute additional capital. By default, profits and losses are split between dentists based on their ownership percentages.
It is a good idea to work with a dental CPA to deviate from this model and come up with a custom system for splitting the profit and expenses of the practice.
- Splitting expenses in a dental partnership agreement
The easy, however usually unfair, the dental partnership model is to split all expenses based on ownership percentage. This split is done regardless of who is working and incurring the expenses.
One model, that many prefer, is to split the practice expenses according to each dentist’s production. At the end of each month, the partnership will calculate each partner’s expense percentage based on that dentist’s gross monthly production. Under this model, dental and office supplies are also split up based on the dentist’s percentage of production. Rent and other fixed monthly expenses will usually be split 50/50 in a two-person partnership. All remaining expenses will be allocated to the individual who incurred them. Once all expenses have been accounted for the remainder is profit.
Again, most dentists prefer to split the profit in proportion to the ratio of each dentist’s production. If one dentist produces 80% of the dentistry, that dentist should receive 80% of the profit. It is also a very smart decision to set aside 10-20% of the profit each month for the practice operating expenses.
- Handling hygiene revenue in a dental partnership agreement
In a general dental partnership, there will likely be a hygiene revenue stream. Some partnerships may decide to split the hygiene revenue pool based on each dentist’s production ratios each month. Others decide to split the hygiene revenue based on which dentists conducted or referred to the hygiene exam. Under this latter model, each dentist will likely compete to conduct the hygiene exams in order to seek additional revenue.
References
https://search.activebeat.com/dentists/dentists
https://www.federalfianncialrelations.gov.au
At Legal writing experts, we would be happy to assist in preparing any legal document you need. We are international lawyers and attorneys with significant experience in legal drafting, Commercial-Corporate practice and consulting. In the last few years, we have successfully undertaken similar assignments for clients from different jurisdictions. If given this opportunity, we will be able to prepare the legal document within the shortest time possible.