Financing the Associate Buy-In Options and Legal Implications
Jun 5 2024 0

Financing the Associate Buy-In: Options and Legal Implications

Associate buy-ins are an attractive option for young dentists starting out to become business owners and be a part of running a dental practice with the benefit of experienced support. Associate buy-ins allow a new dental professional to lay the groundwork for a successful and long career as a medical provider and entrepreneur. Under the tutorship of an established dentist, an associate can gain the advantage of support and guidance on the clinical aspects of the practice as well as the administrative and business sides of operations. These essential and valuable skills can set an associate dentist on the path to success in the future when they eventually take over.

An associate buy-in is a big step and one where the details count. When entering into such a pivotal agreement, it is essential to understand everything that goes along with buy-in and fully comprehend one’s rights and responsibilities. For assistance with this, a Los Angeles associate buy-in attorney at Leiva Law Firm has extensive experience assisting with the buy-in process and is ready and prepared to help.

Structuring an Associate Buy-In

Financing the Associate Buy-In Options and Legal ImplicationsWhen the right practice is found, and a price and percentage of ownership are agreed upon, many aspects and elements must be touched on in a partnership agreement, including financing. Here, there are options. Choosing the right approach is critical because it can affect future cash flow and the practice’s financial health.

It is often the case, that a senior doctor will assume the role of financing the associate. There is a very good reason for why. When a junior dentist goes to the bank, the bank loan typically can only be obtained through the guarantee of the senior doctor in the form of a lien on the practice’s assets. This is a very risky move because if the junior doctor defaults, then it is not just the junior doctor’s share of the practice that will be subject to the bank’s foreclosure. The entire practice is subject to foreclosure. A senior doctor will not want to lose the business they have built due to poor financial judgments made by another party.

On the other hand, when a senior doctor finances the junior doctor, this risk is removed from the table. In this scenario, the associate will start by paying a portion of the purchase price upfront. Usually, the amount falls between 10-20% of the price. The rest of the costs are then paid over the long term, as per the agreement. An income differential is a popular method to pay off the remaining costs of ownership. Under these terms, a set timeframe for paying the senior doctor is determined, and then a portion of the junior doctor’s pay is transferred to the senior doctor until the money is paid in full.

Another possible route is a sweat equity-structured buy-in. This approach allows the junior doctor to exert considerable effort to earn ownership over time. Tax considerations are a large part of putting this type of financing option together, but it provides another example of a flexible financing arrangement available to a prospective associate.

Speak to an Attorney at Leiva Law Firm Today

Choosing the right financing structure for your buy-in is one of the most crucial and important aspects of the process. For assistance with an associate buy-in for a dental practice in California, please call Leiva Law Firm at (818) 519-4465 today to schedule a free consultation with our experienced and dutiful attorneys. 



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