Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, contact me (Michael Carabash) or David Mayzel.
I was talking with a dentist the other day. He was going to become an associate for a dentist. After about a year or so, he wanted to buy the practice. He spoke the magical words: “Right of First Refusal“. He didn’t really understand what those words meant. He just heard someone say it. So naturally, I asked: do you have an agreement in place that would give you said RIGHT OF FIRST REFUSAL? No, he responded. It was just mentioned nonchalantly between him and the dentist. That’s when I suggested he put something in writing (e.g. in an associate agreement).
The whole idea behind Associate Buy-Ins is that an associate will work as an associate for a practice where the dentist has a desire to sell in a few years or less. Perhaps the dentist is moving or retiring. The point is that the dentist has put in a lot of time and effort in building up the practice and doesn’t want to lose the goodwill. Even better: if they can show an associate the ropes for a few months / years, then it will be a smooth transition.
For the associate, it’s a win-win situation: they’re getting paid to learn the practice, get to know the patients, and then one day buy out the practice. Their major concern, however, is valuation: if they are contributing to the overall goodwill and value of the dental practice, then why should they end up paying FOR THEMSELVES when it comes time to purchase the practice? A dental practice appraisal company – such as ROI Corp. or Professional Practice Sales – may need to be engaged to factor in the goodwill that the associate has contributed to the practice.
How it all works in writing
Now, what about having something in writing? Well, we lawyers typically draft up provisions in an associate agreement, as an amendment to the associate agreement, or as a separate agreement that includes a right of first refusal. Here’s how it works:
If the dentist receives any bone fide offer from a third party dentist for the purchase of a dental practice (in its entirety), then that dentist will FIRST HAVE TO present that offer to the associate. The associate has a right to purchase, on similar terms to the third party dentist offer, the dental practice. The dentist will essentially be forced to sell the practice to the associate. If the associate doesn’t want to buy the dental practice, then the dentist may then proceed to sell it to the third party dentist.
Now, that’s the overall gist of the RIGHT OF FIRST REFUSAL. There will be other details that need to be negotiated – such as:
Now, there could be other complicating factors to a right of first refusal. For example, if the dentist carries on a dentistry professional corporation and is going to sell SOME BUT NOT ALL of his shares in that corporation to another dentist, then a right of first refusal may apply in that situation to the associate. In other words, the associate would have the first right to purchase those shares if there was an offer from a third party dentist.
If you’re a dentist or an associate and you would like to have a right of first refusal reviewed / revised / negotiated, please contact me.
David Mayzel is your legal risk manager. He is a trained courtroom lawyer and has spent many years resolving disputes both in and out of court. He knows how to prepare documents and execute transactions in a way that avoids or mitigates legal risks. He can be reached at 416.528.5280. or email@example.com.
Michael Carabash is your business law adviser. He is an entrepreneur at heart who helps you see the big legal picture. He drafts clear and effective agreements that protect your rights while promoting your interests. He can be reached at 647.680.9530. or firstname.lastname@example.org.
Ljubica Durlovska is your transition lawyer. She helps you with staff and associates, maintaining your corporation, and other business matters. She can be reached at 416.443.9280, extension 206 or email@example.com.
Jonathan Borrelli is your employment lawyer. He helps you with staff and associates matters, including hirings, terminations, switching staff to written contracts and resolving disputes. He can be reached at 416.443.9280, extension 204 or firstname.lastname@example.org.
Benjamin Kong is an experienced business law clerk. He assists David and Michael with corporate matters and purchase / sale transactions. He can be reached at 416.443.9280, extension 207 or email@example.com.
Julie Whitehouse is an experienced business law clerk. She assists David and Michael with corporate matters and purchase / sale transactions. She can be reached at 416.443.9280, extension 203 or firstname.lastname@example.org.
David, Michael, Ljubica, Jonathan, Ben and Julie are a truly dynamic team. Their diverse knowledge, skills, and experiences will help you get the best deal possible while promoting your interests and protecting your rights. You can read dentist testimonials here.