Dental Partnerships/Expense Shares & limited companies – departure of a principal
We have recently dealt with a number of internal sales and purchases caused by the retirement of a departing principal. Here we attempt to summarise some of the key issues which tend to arise in these cases. As dentistry is all we do, we have the specialist knowledge to know what particular issues will arise in dental practice retirements.
A retirement or departure is always easier in there is a clear pre-existing agreement in place. We would always recommend that a partnership, expense share or dental limited company has a written agreement drawn up between the principals/shareholders containing clear and agreed provisions regarding what happens when a principal wishes to leave. These provisions include:-
- The notice period to be served
- Who gets first refusal of the departing principal’s share
- How such share is to be valued
- How such share is to be paid for and over what period
- What happens if none of the remaining principals wish to buy.
If you do not have a clear document in place, we would suggest this is attended to as a matter of urgency. We offer a fixed fee service for the drafting of such documents by one of our team of dental legal specialists.
Assuming that the terms of a buyout by the remaining principals have been agreed, it is still important that a sale and purchase document be prepared to record and deal with the following matters (to avoid disputes and ensure good order):-
- the preparation of a set of Accounts up to the leaving date to work out accrued profit/losses and expense contributions of the principals and (in partnerships) also whether the departing principal is entitled to withdraw any sums by way of capital or previous undrawn profits which have not been accounted for in the Purchase Price being paid.
- Notices to NHS England and CQC to ensure the departing principal’s retirement is notified appropriately;
- The release of the departing principal from any security supporting practice debt (if such release is possible) or ensuring appropriate indemnities from the remaining principals are obtained if such releases cannot be obtained;
- How any defective treatments of the departing principal which come to light after retirement are dealt with. (This is often an issue which is overlooked. Is the departing principal to correct or deal with such issues indefinitely or for a limited time post Completion? Should the remaining principals retain a retention from the departing principal to provide a readily available cash fund to cover such matters?);
- Ensure the departing principal signs up to fair, reasonable and enforceable non-compete provisions (particularly if any existing document is silent on these issues or contains out of date or unreasonable clauses)
- Notifications to patients (how does the departing principal want their departure announced?) and suppliers (with a view to the departing principal being removed from contracts of supply wherever possible).
As ever proper planning prevents a poor outcome! Putting in place a clear agreement between the principals regarding retirement will save time and cost in the future.
If you would wish to discuss any of the above issues in more detail, please contact Stephen Knowles on 01904 521270 or at Stephen@pfmlegal.co.uk
PFM Dental Legal are specialist dental solicitors advising dentists throughout England & Wales.
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