July 8, 2022
By Patrick Stanley
Dental partnerships can be rewarding, but there are also potential pitfalls. This is especially true without a carefully crafted partnership agreement. You will want to tailor your partnership for your specific situation. The following are just some of the important terms you may want to consider when entering into a partnership.
Does My Dental Partnership Need To Be An LLC Or Corporation?
You do not have to form a separate legal entity for the partnership. You do not even need to have a contract. Instead, Arizona law will imply a partnership whenever two or more individuals engage in a common business. Under A.R.S. Section 29-1012, a partnership can be created even if the parties did not intend to create a partnership. This can have several unintended consequences. For example, partners in a general partnership can be jointly liable for all debts of the partnership under Arizona law. Therefore, if your partner incurs a debt on behalf of the partnership, even if it is without your knowledge, you can be held personally liable for the debt.
Accordingly, although not required, dental partnerships should usually create a separate legal entity for the practice. Dentists in Arizona can choose several different entity structures. These include corporations, limited liability companies, or limited liability partnerships. However, for dental partnerships with only a few owners, the limited liability company (LLC) is typically the preferred option. LLCs combine the flexibility of a partnership with the liability protection of a corporation.
How Should I Structure A Dental Partnership?
The operating agreement is the key document for the dental partnership organized as an LLC. The operating agreement acts as the contract between the individual dentist owners and the company. It will help determine the terms on which the dental partnership is formed, how it will be operated and how it will be terminated. With each of these phases, there are some important considerations.
What Are The Financial Considerations Of A Dental Partnership?
From the outset, it is important to consider the ownership structure of the practice. Will the partners be 50/50 owners? Will the partners make equal contributions to get the practice started or will one party be buying in over time? How and when will profits be distributed? Will the doctors pay themselves a salary for working at the practice? You should answer these questions before the LLC is formed. You should also document the exact terms in the operating agreement. If you have any questions, you should contact an experienced healthcare attorney to advise you and prepare the operating agreement.
What Are The Management Considerations Of A Dental Partnership?
The operating agreement should also address management structure. For example, who will make the day-to-0day decisions for the partnership? Do you want to appoint one of the partners as the manager, or do you want to make decisions jointly? Do you want to put a cap on each owner’s authority, so that decisions above a certain dollar amount must be approved by all partners? What other decisions do you want all partners to make jointly?
When Will The Dental Partnership End?
Typically, LLCs are perpetual and do not terminate without action by the parties. However, death, disability, divorce and bankruptcy are all unfortunate events that can occur during the life of a partnership. You may want to specify that the LLC will end if those events happen. Conversely, you may want to agree that if those events happen, one owner can buy out the other. For example, if a partner dies, the operating agreement can provide that the surviving partner can buy out the deceased partner’s interest over time. This allows the surviving partner to continue operating the practice while providing a financial benefit to the deceased partner’s family. You may also want to provide an escape plan in the event that, for whatever reason, the partners just do not get along. In any event, having plans for events up front can spare confusion and controversy down the road.
These are just some of the issues to think about when setting up a dental partnership. If you are a dentist with questions about a partnership agreement, please feel free to contact one of our attorneys directly.
This post is for informative purposes only and should not be used as a substitute for consultation with a licensed attorney. It provides general information and a general understanding of the law, but does not provide specific legal advice. No attorney-client relationship is created by the posting of this information. If you have specific legal questions after reading this post, you should contact a licensed attorney.