The basics of dental transition legal documents
Dental transitions are filled with several moving pieces, and when you reach the point where you need to legally finalize the deal, managing the documentation can be an intricate, yet integral process of its own.
At this point, you’ve come a long way in the transition journey. As a buyer, you may feel this is your dream practice, or as a seller, you may be excited about your future new partner or the doctor who’s going to fill your shoes. You don’t want anything to rock the boat before closing the deal, so you’ll want to ensure everything is in line to keep you protected.
While the legal documents are not a warm and fuzzy part of the process, they help ensure both parties’ expectations are clear, and they sometimes plan for the worst-case scenarios. As the legal documents can become a contentious piece, remember that there is a person on the other side, so it’s important to keep a fair and reasonable perspective in mind.
Laying out all the terms on paper and negotiating with the buyer or seller can feel like putting a puzzle together. To set some groundwork, here’s an overview of the legal document phase.
Engaging an Attorney
There’s a common misconception that an attorney should be engaged early in the transition process. However, in dental transitions, attorneys aren’t typically the people who do the negotiating and figure out how the deal is going to pan out.
Instead of hiring an attorney right out of the gates, determine your transition team, and define each of their roles. A transition advisor like NDP, can facilitate all aspects of the process, including the legal documents and when in the process to engage an attorney, directing you toward the route that best fits your needs.
Types of Legal Documents in Dental Transitions
There are a couple different legal documents that govern your transition and the agreement moving forward. The type of transition will dictate the documents you need.
Asset Purchase Agreement: This is the formal and binding sale agreement of the practice assets. Most often used in walkaway asset sales, this 20-30-page document uses the drafted letter of intent (LOI) as a foundation, and fully describes it in detail. The asset purchase agreement is essentially a story of the LOI.
The document can also include other negotiated language and incorporate the legal terminology needed to protect both parties. It can include details on the seller workback period, contingencies, indemnification language and standard representations and warranties for both parties.
Partnership Agreement / Operating Agreement: This document, whether it’s a partnership agreement or an operating agreement, will detail the terms for a multi-owner practice. It should include terms regarding management decisions, expense splitting, admission or removal of partners, exit plans, and terms for how you will govern disability, death or the dissolution of the partnership.
Typically 70-80 pages in length, the partnership or operating agreement includes all the variables that must be documented when entering into a partnership.
Bill of Sale: This is the formal document conveying the transfer of ownership and assets from one party to the other. Although it’s only a one-page document, the bill of sale is the significant piece that transfers the sale.
Seller Associate Agreement: This document is the employment or independent contractor agreement that may detail the post-close work-back terms for a seller who will be working back in the practice. It may include non-competition restrictions, compensation terms, schedule requests and other obligations or terms negotiated as part of the process.
Lease / Building Purchase Agreement: This document will transfer either the ownership of your practice real estate or the lease obligation to the new buyer. While a separate transaction from the practice sale, the sale or lease of the office space is a critical component of the transaction for the buyer and buyer’s lender.
A Weight Off Your Shoulders
The legal document phase is an intricate piece of the entire transition puzzle that requires diligence and precision. NDP can take the weight off your shoulders and assist in negotiating the terms and facilitating the legal documents, ensuring you have a trusted guide through every aspect of the process. Reach out to our team today.