Dental Practice Purchase Agreement Attorneys in Los Angeles
When it comes to advancing your career and building your reputation, purchasing a dental practice is one of the most ambitious moves an up-and-coming dental professional can make. If you are a dentist who is considering this life-changing move, you should consult an experienced attorney as soon as possible to ensure you are in the best possible position to make this type of advancement in your career.
A California dental practice purchase agreement is an official document that outlines the terms and conditions that have been agreed upon between the buyer and the seller of a dental practice. Dental practice purchase agreements summarize the specifics of the business transaction, including which party assumes responsibility for problems, when the move can take place and more. When it comes to drafting one of these agreements, it is vital that you work with a lawyer who has prior experience in doing so. Receiving legal counsel from a qualified law firm will help ensure that every single one of your legal concerns about your dental practice sales or purchases is addressed.
At Leiva Law Firm, our Los Angeles business attorneys have been helping sellers and buyers through the process of offloading and acquiring dental practices for decades. Our law firm can assist you by crafting a strong practice purchase agreement and ensuring you fully understand the individual elements of the agreement as things progress. We are committed to making sure our clients are wholly aware of the rights and responsibilities that come with the sale or purchase of a California dental practice. Contact our law firm today to find out what we can do for you.
The Five Stages of Practice Transitions
A dental practice transition takes place when an existing practice brings a new professional and their patients on board, or when the owner of a dental practice decides they want to sell. It is important for everyone involved that the dental practice transition goes smoothly. However, regardless of how much planning and foresight you put into it, transitioning a dental practice into new ownership is challenging.
Once you have done your research and discovered a Los Angeles dental practice you would like to buy, there are five stages of practice transition you must go through in order to guarantee that the practice you have chosen is suited to your needs.
These stages are:
When purchasing a dental practice, most dentists search for a dental office tailored to a specific geographic location, case mix index, and practice size that best suits their needs. Adhering to these criteria will help you find the practice that will give you the best work-life balance.
Writing a Letter of Intent
A letter of intent represents a buyer’s intent to purchase the equity or assets of a particular business. It is also the first legal step toward purchasing a dental practice.
Almost every dental transaction begins with the parties negotiating terms and signing a letter of intent. This letter allows both sides to reach a preliminary agreement with the basic terms of the deal before they put time and money into drawing up a fully developed agreement, and without being statutorily obligated to see the transaction through.
In business transactions, a letter of intent begins as a proposal from one party to another. This proposal is then negotiated and modified accordingly so that the final letter reflects the expectations of both parties. If either party does not agree to the letter of intent, they will either renegotiate or soon realize that the transaction is unlikely to be successful.
When purchasing an existing dental practice, the process of assessing all significant factors associated with the practice is known as due diligence. This involves performing a thorough investigation into the operational, legal, and financial elements of the practice so no unwelcome surprises happen if the potential buyer decides to purchase the practice.
Due diligence is also a method of assurance wherein the purchaser is given an opportunity to confirm and verify everything the seller has told them about the practice. When the transaction is small, performing due diligence can take as little as a few weeks. However, where larger transactions are concerned, it is not uncommon for the process to take considerably longer, continuing right up until closing.
Business and Financial Considerations
A business plan is a valuable strategic tool that all businesses should take the time to craft. Before buying a dental practice, you need to consider what your goals are, and the types of procedures and patients that align with your interests and skills. This will enable you to determine the type of dental practice you should invest in before you create a business plan and begin investigating your financing options.
Drafting a compelling business plan is vital to the success of any business. A business plan delivers meticulous information intended to help a business build a path to long-term success and growth. Business plans contain information regarding marketing, market analysis, competitive analysis, shareholder agreements, cash flow projection, associate agreements, commercial contracts, and other applicable business information. By learning this information and formulating a plan, the business can focus on the actions necessary to achieve its short- and long-term goals.
Finalizing Legal Documents and Closing
There are multiple parts to closing the sales deal. Working with professionals from a respected Los Angeles business law firm will ensure that your best interests are protected while you finalize your purchase.
What to Look for During the Purchase Process
When you are purchasing a dental practice, there are a few things you need to keep an eye out for, making it essential that you understand what is in your purchase agreement.
A few of the most important clauses often found in these agreements are:
When you buy a dental practice, a sales contract called an Asset Purchase Agreement is created. Among the numerous sections in the APA, there is usually one that states that closing on the sale is contingent on various terms.
You need to review the specifics of the contingencies contained in your purchase agreement. They typically pinpoint events that have to happen before the purchase agreement can advance to the next stage. In the event that the contingencies are not satisfied, you, the buyer, will be able to walk away without accepting any liability.
Some contingencies are:
- Any existing records maintained by an accountant for a buyer must be approved
- Specific loan terms must be met
- The buyer must accept the exiting or entry of a new lease under specific terms
- The purchase must be approved by an attorney
A non-compete clause bars the seller from practicing dentistry inside of a specified geographic area for a previously established length of time. The purchase agreement will clearly note the duration and the distance within which the dentist is not allowed to practice. It is imperative that this clause includes very specific details regarding any and all activities that are prohibited and allowed. If the seller remains employed by the practice for any length of time, the non-compete clause needs to state that it does not go into effect until the last day of the seller’s employment.
Defective Dental Work
It is generally assumed that the buyer will fix any small things that go awry during the purchase process. However, should a significant failure transpire, it is important to clearly and definitely state that the costs of any repairs are divided between the seller and the buyer. In most cases, a clause is included that specifies that the seller may opt to return to the dental office to fix defective dental work or pay the purchaser somewhere between 50% and 75% of their normal fee to do the work. This clause should also establish the time period for which it is effective and the method the purchaser will use to notify the seller of these issues.
Representations and Warranties
Representations and warranties are both seller statements used as a foundation on which the buyer will make their purchasing decision. Oral representations should be documented in the purchase agreement. Most standard warranties include general statements regarding the merit of purchasing the dental office, and whether the dental office has any outstanding encumbrances or liens on its assets. It should also state if the seller’s license to practice has been revoked.
Any existing dental practice is going to have outstanding balances due from insurance companies and patients for services that have already been provided. When purchasing a practice, it is important to take into consideration how you are going to deal with outstanding accounts. You can either let the seller retain them or you can purchase them. Since a significant amount of money is likely involved, your intention needs to be clearly summarized in your letter of intent and thoroughly researched during the due diligence process.
While the purchase agreement is certainly the central document in the purchase of a dental practice, it is not wholly adequate on its own. It is essential that other documentation, such as deposit records, intent to purchase letter, office lease, and non-disclosure agreements, are conscientiously prepared and included.
Working with a knowledgeable and skilled law firm with extensive experience will ensure reliable advice on legal matters, the protection of your rights, and your best interests as you move in the right direction with the purchase of a Los Angeles area dental practice.
More About Non-Competes When Buying a Dental Practice
A restrictive covenant, more commonly known as a non-compete agreement, is crucial to protecting your practice. These covenants apply in only two situations:
- When an existing practice is being purchased
- When an associate dentist is hired to work at your practice
In each of these scenarios, a dentist other than you is familiar with your practice, patients, and employees. Since this dentist knows your practice better than you do, it is a good idea to incorporate a non-compete clause. This will allow you to practice dentistry without any significant obstacles. ‘
Some other non-competes you should include for the protection of your practice are:
- A restrictive covenant that precludes the seller and their former employees from practicing within a certain geographical location
- A patient non-solicitation covenant that bars the seller or their former employees from soliciting the new owner’s patients
- A non-solicitation covenant for employees that bars the seller and their former employees from hiring other former employees at the new office
- Confidentiality requirements that forbid disclosing any confidential records or patient information.
For a restrictive covenant to be enforceable, it must be prudent, reasonable, and intended to protect the dental practice. When determining the validity of a restrictive covenant, the factors that should be considered are:
- Location: The exact area that is off-limits needs to be specific and reasonable.
- Time: The length of time for which the restrictive covenant applies must be clearly defined in the clause. Usually, these restrictions are in place for one year to three years. Under associate agreements, employees are restricted while employed by the practice and for a specific length of time after their employment ends.
- Scope: A restrictive covenant must be detailed and may only restrict actions as they are needed to protect the new owner’s practice.
Parties bound by a restrictive covenant clause must be given consideration in exchange for agreeing to abide by the covenant. A skilled Los Angeles law firm can help you with your legal needs, including confirming that your restrictive covenant is appropriately structured and will safeguard your best interests.
Speak With an Experienced Litigator at Leiva Law Firm
Attorney Marlene Leiva at Leiva Law Firm has more than 25 years of experience ensuring dental practices and other industries in the Los Angeles area have their rights protected while managing some of the most complicated practice purchase agreement cases. All of our attorneys have extensive experience helping professionals safeguard their reputations and their businesses while making sure they understand the legal aspects of their practice purchase agreements.
We work hard to make sure our clients are in the best possible position to proceed with their practice purchase agreements and start their new dental practice with conviction and confidence. Contact the Los Angeles business attorneys at Leiva Law Firm by calling (818) 703-1777 today and schedule a free and confidential consultation with our attorneys and find out what legal options are available for your business.