A dental partnership agreement should explain what each owner contributes, earns, controls, and owes when circumstances change. Resolve ownership, compensation for work, cash distributions, decision rights, capital needs, deadlock, and exit terms before relying on an informal promise to “split everything.”
Prepare an issue memo for an attorney experienced in dental ownership transactions. Have each proposed owner consider independent counsel, and involve a tax adviser before settling the economic provisions. The ADA specifically identifies compensation, benefits, termination, and responsibility for practice decisions as matters a partnership contract should address. ADA guidance on purchasing and sharing ownership.
Describe exactly what the partners will own
Start with the legal entity and the transaction. Are the dentists buying interests in an existing practice, forming a new entity, or sharing premises while retaining separate practices? Everyday use of “partner” does not resolve those questions.
List the owners, proposed percentages, contributed cash or property, purchase payments, existing debt, and assets included. Identify real estate, equipment entities, or management arrangements separately. State which items need valuation or third-party consent.
Ask counsel to confirm the permitted entity form, eligible owners, professional control requirements, and relevant state dental rules. Ownership rules vary by state, as the ADA's practice-model guidance notes. Do not assume an ordinary business entity or a non-dentist investment arrangement is permitted simply because it works elsewhere. ADA overview of practice and ownership models.
When someone is buying into an existing office, use the practice acquisition due diligence checklist to investigate the underlying assets and obligations. The partnership agreement governs the owners' ongoing relationship; it should reflect what that investigation established.
Separate ownership from payment for work
Discuss the money in distinct categories before debating percentages.
| Category | Question to resolve |
|---|---|
| Initial investment | What does each owner contribute, and what interest does that acquire? |
| Clinical and management work | How is each role compensated, measured, and adjusted? |
| Profit and loss allocation | How are accounting and tax results allocated under adviser-approved terms? |
| Cash distributions | Who authorizes payments to owners after reserves and obligations are considered? |
| Owner loans | Which advances are debt, and what repayment priority applies? |
For example, two dentists might propose equal ownership while one works four clinical days and the other works three plus defined management duties. That hypothetical arrangement needs a separate work-compensation formula. Equal ownership does not tell the bookkeeper how to value clinical time, management responsibilities, or a later reduction in either.
Specify the source reports, adjustment rules, collection timing, refunds, laboratory charges, and reconciliation process behind any work-based formula. Identify who may change it and whether the change requires notice or owner approval.
Tax treatment depends on the entity and its classification. For a business taxed as a partnership, the IRS explains that partners report their shares of income or loss and are not employees of the partnership issued Forms W-2. Do not apply that rule automatically to a corporation merely because its shareholders call themselves partners. IRS partnership guidance.
Have the tax adviser explain allocations, distributions, estimated-tax needs, and any guaranteed payments using the proposed structure. Avoid promising that a cash distribution will equal a partner's taxable income or personal tax bill.
Give each decision an approval rule
A percentage ownership schedule is an incomplete operating manual. Agree on who can act during an ordinary workday and which decisions require broader consent.
| Decision | Terms to settle with counsel |
|---|---|
| Routine spending | Budget authority, transaction limit, and documentation |
| Hiring or compensation changes | Responsible owner and approval threshold |
| Debt, guarantees, or major equipment | Required vote and any personal consent |
| New owner, location, or sale | Approval threshold and notice process |
| Related-party arrangement | Disclosure, independent review, and voting restrictions |
| Clinical governance | Professional responsibility and limits on business-owner authority |
Choose thresholds from the practice's actual budget and risk. Record whether voting follows ownership percentage, one vote per partner, or another lawful structure. Address quorum, notice, written consent, emergencies, and what happens when a partner cannot participate.
Also define information rights. Each owner should know which financial reports are delivered, how often, who can inspect supporting records, and how questions are resolved. Access should support the ownership role while respecting patient and employee confidentiality.
Test capital needs and deadlock while relationships are good
Walk through a cash-shortage scenario. Suppose the practice needs an unplanned equipment replacement while collections are below forecast. Who can use reserves? Can an owner require additional contributions? What happens if one partner cannot contribute?
Ask counsel to document the agreed sequence among reserves, borrowing, owner loans, new capital, and spending changes. Any dilution or default remedy needs explicit professional review. A partner should not discover the consequence of declining a capital request after the money is due.
Next, test a deadlock: equal owners disagree about adding an associate and neither can outvote the other. Set a process for written positions, a discussion deadline, and an agreed next step such as mediation or another counsel-designed mechanism. State what routine operations continue while the dispute is unresolved.
Evaluate any forced-buyout provision carefully. A mechanism that appears evenhanded on paper may affect owners differently when one has much greater access to financing. Ask each partner to explain the outcome if they are the person required to sell or buy.
Resolve the exit before choosing the signature date
Voluntary departure, death, disability, loss of required licensure, retirement, and removal for defined cause need separate review. Avoid a single sentence that applies the same timing and price to every event.
For each trigger, settle:
- the notice and evidence needed to start the process;
- who may or must buy the interest;
- the valuation date, method, and dispute process;
- cash due at closing and any installment terms or security;
- treatment of debts, guarantees, owner loans, and unpaid work compensation;
- patient communication, records custody, and unfinished work;
- insurance responsibilities and continuing obligations.
The dental practice valuation guide helps frame the valuation assignment. A stale annual value, an earnings formula, and a new independent appraisal can produce different outcomes; decide how the agreement handles missing updates and unusual periods.
Have counsel review any confidentiality, nonsolicitation, noncompetition, or other restrictive provision under applicable law. Coordinate the agreement with lender, lease, insurance, and related entity documents. An internal promise to release a guarantee does not establish that the creditor has released it.
Before signing, ask every owner to answer the same four questions: What will I earn for my work? Which decisions can I make? What can the practice require me to fund? What happens if I leave? Any conflicting answers belong back in the attorney's issue memo.
