Buying a dental practice? Here’s what you need to know about getting your financing in place:
If there’s a fire, the banks want to be covered for the amount of the loan. For this reason, you will have to obtain fire insurance and assign it to the bank. The amount of fire insurance depends on the value of the contents.
If you die / become disabled, the banks want to be covered for the amount of the loan (or more in order to cover additional expenses). They’ll ask you to assign the life insurance policy to them (although you’ll still be required to pay the monthly premiums). So if you do have to do this, make sure you get EXTRA insurance to cover your loved ones (in the event of your death)!
You will need to provide the bank with proof of malpractice insurance. Since all dentists in Ontario are automatically insured through the Royal College of Dental Surgeons of Ontario (the “RCDSO“), this only requires you to write to the RCDSO and ask for a letter confirming that you have malpractice insurance in the amount of $2,000,000.
Another form of insurance required by the bank is general liability insurance. This is because the bank wants to know that, in the event of a lawsuit against the company, the insurance will be able to cover the costs of the law suit so that you may continue to pay back your obligations towards the bank.
Where the practice premises is leased, the bank will want to be provided with a copy of the signed lease assignment, coupled with the landlord’s consent. Where the practice premises is being purchased, the bank will want to see the purchase documents.
The bank will normally ask to see at least 10 years left on the lease. This can be an issue, for example, if you’re purchasing a practice where the lease only has 5 years left. What this means is that your lawyer will have to work extra hard to get you that 10 year term. But in the event that the landlord is not willing to give you the 10 years you seek, then a shorter term (i.e. 8 years) could work, but the terms of your bank loan, such as the amortization period of the loan, will have to change.
Another tricky situation when it comes to leases is that the bank will not tolerate a demolition clause in the lease which can be exercised during the 10 year term. The reason for this is because a demolition clause, properly exercised, could cause the dentist to be out on their rear without a location from which to practice well in advance of the lease term being up. Such a disturbance to the practice may result in loss of revenue and therefore a default on the loan.
For more information on demolition clauses you can read this blog.
If you are borrowing funds in the name of a dentistry professional corporation then, in order to ensure that you do not “hide behind the corporation”, the bank will usually ask that you, the dentist, sign a guarantee stating that you will be personally responsible for any default of the corporation.
8. General Security Agreement
Another way the bank will seek to protect its interest is by asking you to sign a General Security Agreement (the “GSA“). The GSA gives the bank interest in and recourse to all of the equipment, inventory, instruments, books & records, tangibles/intangibles, etc. at your office in the event that you and/or your corporation defaults on the loan. The bank calls these items “collateral”.
Once you agree to the bank’s terms, then the banks lawyer or your lawyer will register the GSA in the Personal Property Security Act (the “PPSA“) register. The PPSA register is a place where creditors can register their interest against a person or company. This registration will normally stay in place until it is renewed or until such time as you pay off your debt and the registration is “discharged”.
In some situations (depending on the bank, the amount of the loan, etc.) the bank will ask your lawyer to provide the with a letter of opinion. This states that the lawyer has examined certain documents and has done the necessary searches in order to guarantee to the bank that the borrower is a valid corporation which has the capacity to borrow funds, that there are no other PPSA registrations against the borrower, etc. Not all banks and not all loans require a lawyer’s letter of opinion, but in our experience, this is a more and more common occurrence and you should be aware of it.
Where your corporation is borrowing the funds for the purchase, the bank will want to see a directors’ resolution authorizing the corporation to sign the loan documents. A Certificate of Status of the corporation will also be required. This is a document from Service Ontario stating that the dentistry professional corporation is a valid corporation that is still in existence.
For further guidance and information on practice financing, you can contact me (Ljubica Durlovska), David Mayzel or Michael Carabash. We are your legal dental team.
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.
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 (Ljubica Durlovska), David Mayzel or Michael Carabash.
So you’ve done the smart thing and formed a dentistry professional corporation to reap the tax benefits (and certain limitation of liability benefits). Your lawyer is telling you that your newly formed corporation needs a “Minute Book” and you’re wondering what it is and why you need one…
The minute book is literally a book, a binder, or an attache case which houses all of your corporation’s key documents. It serves as the official record of the corporation’s activities and documents all material transactions which involve the corporation. The minute book holds, among other things, the following documents:
The Ontario Business Corporations Act (the “OBCA“), which is the key legislation governing Ontario corporations, specifically requires that certain documents be prepared and kept by the corporation, including:
A “minute book” itself is not required by the legislation, but if all of the above documents must be kept by the corporation, then they should be kept together in an organized and legible manner.
Significant Costs – If your corporation does not have a minute book or its minute book is not organized and up to date, then you will most likely incur a significant cost for organizing or updating it. This is because it takes much more time and effort to piece together and document past corporate proceedings and actions than it does to maintain your minute book annually.
Banking Delays – not having a minute book or having an out-of-date minute book can result in delays, including delays in responding to bankers who may need to see your minute book in order to authorize a corporate banking transaction such as borrowing money.
Penalties – the OBCA provides for certain penalties for failing to maintain proper corporate records and attend required government filings.
Delays on Sale of the Corporation – if you are selling your business, the buying dentist’s lawyer will ask for the corporation’s minute book in order to ensure that all of the corporation’s documents are in order. If the minute book is not in order, you will incur extra costs for updating your minute book and such updating endeavour may delay your transaction.
Cancellation of Certificate of Incorporation – if the corporation is in default of mandatory government notice filings (such as an initial notice of directors/officers) the government will, after giving notice, cancel the corporation’s certificate of incorporation which means that the corporation will no longer be legally allowed to operate and additional fees must be paid to revive the corporation.
Government Audits & Discrepancies – from time to time, the Canada Revenue Agency may perform audits of your corporate tax returns. In order to ascertain the business of the corporation, the CRA usually asks for the minute book of the corporation. If the minute book does not reflect accurately the business of the corporation, you might incur undue expenses. For example, say you receive a dividend from the corporation (dividends being taxed at a lower rate than salary or bonus income) but you cannot prove it to the CRA through the production of directors’ minutes declaring a dividend. It is open to the CRA to challenge your characterization of the money you received from the corporation and you may end up being required to pay a higher tax rate.
Some choose to keep their own minute book and do their own annual updates and organization. A step by step tutorial on how to go about maintaining your own minute book is beyond the scope of this blog, but I will say that all major corporate events should be reduced to writing and placed in the minute book right away. Even if there are no major events to be recorded, annual minutes of directors/shareholders must be held and recorded in the minute book.
In my experience, most people prefer to leave their minute book with their lawyer and, for a fee, have their minute books updated annually, eliminating the stress and headache of having to update their own minute book. Beyond saving your sanity, having a lawyer keep and update your minute book is also beneficial because:
If you wish to discuss having your minute book kept and updated annually by our office, you can contact DMC LLP by clicking here.
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 firstname.lastname@example.org.
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 email@example.com.
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 firstname.lastname@example.org.
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 email@example.com.
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 firstname.lastname@example.org.
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 email@example.com.
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.