Sometimes, a dentist might own a piece of real property with another person. But did you know that there are different business structures which the dentist might end using inadvertently (some structures are better than others – depending on your specific circumstances)? This comes up when a dentist passes away, for example, when the Estate Trustee has to deal with co-owned property of the deceased…
In what follows, I’ll briefly discuss co-ownership in the form of tenants in common and how this structure differs from a partnership. Before talking about those differences, it’s worthwhile to discuss what holding property as tenants in common or as joint tenants means.
To start, you should know that co-ownership means that two or more parties are owning property together. They can do so as tenants in common or as joint tenants. Tenants in common each have an interest (which need not be equal) in the property which can be transferred generally unilaterally and without anyone else’s consent; upon death, that interest would go to their estate and the beneficiaries thereunder.
If, however, parties are holding land as joint tenants, then a right of survivorship arises: the surviving party obtains the other party’s interest in the property when that party dies. Joint tenancy have equal, unlimited, and free access to the property in question. Transfers of property interests must be made unanimously.
There are important control, estate, and tax consequences that may arise – depending on whether you’re holding property as a tenant in common or as a joint tenant. Now, with these preliminary things said and done, I will move on to the differences between owning property through a partnership vs. owning property as tenants in common and NOT through a partnership.
Parties can be co-owners of property without necessarily being partners (Section 3.1 of the Partnerships Act). Here are the key differences between partnerships and co-ownerships:
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 or Ljubica Durlovska.
This is an update to my blog What’s in a Name? What Dentists Need to Know about Naming Their Dental Practice. There, I talked about the types of names a general or specialty dental practice is permitted to have, but I did not discuss mixed specialty practices and co-mingled speciality and general practices. That’s the topic of this blog…
Whether we are talking about a general practitioner hiring a specialist associate or partnering up with a specialist, the Royal College of Dental Surgeons of Ontario (the “RCDSO“) naming rules for mixed general and specialty practices are the same:
Separate RCDSO naming rules govern situations of two or more different kinds of specialists practising out of the same location (whether in partnership or as associates):
For further guidance on practice names, you can contact us or the RCDSO directly or visit them online for useful publications: www.rcdso.org. 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. We are your legal dental team.
Congratulations! You just bought or started up your very own dental practice. Now you want to give your practice a sleek, catchy name that will attract patients and give you an edge over the dentist across the street. But what name should you choose? How about “Best Smile Dental” or “Number One Dentist in Toronto”. Maybe “Dentistry on Smith Street”. Or how about “Pear Tree Dental”?
Dental practice names must be applied for and approved by the executive committee at the Royal College of Dental Surgeons of Ontario (the “RCDSO“). It is considered professional misconduct to operate a dental practice under a name which is not approved by the RCDSO, with very few exceptions (such as “Family Dentistry”).
According to the RCDSO, practice names cannot include the use of descriptive terms about the practice, the practitioner, the equipment, materials, expected treatment results or any other aspect of dental practice. So the names “Best Smile Dental” and “Number One Dentist in Toronto” that you were considering earlier are unacceptable.
So, if the name of your dental practice cannot refer to “any other aspect of dental practice” then what can the name refer to?
According the the RCDSO, and from our experience, dentists who submit applications for a name which is reasonably referable to the location of the practice are normally approved. So, names such as “Dentistry on Smith Street” would be acceptable. Also, names such as “Lake View” or “Mountain View”, if you are close to a lake or mountain would also both be acceptable. However, names such as “Toronto Dentistry” may not fly, because there are thousands of other dental practices in Toronto, so that description may not be “reasonable” in the eyes of the RCDSO.
At this point you might be asking “what about areas that are so saturated that most names referring to the area or location of the practice are already taken?”
In such a situation, the RCDSO recommends that you choose a name which is completely unrelated to dentistry, such as a non-offensive object like “apple”, “tree” or “sun”. So, names such as “Pear Tree Dental” and “Sun Dentistry” will most likely be acceptable ones. But… object names are only acceptable so long as they are not “unprofessional” and do not refer to any other aspect of dental practice such as “Molar Dental”.
Specialist practices, such as orthodontic, periodontic, etc. have other rules imposed on them. The RCDSO practice advisory on practice names states that the specialty referred to must be one of the 11 recognized specialties of the RCDSO and all the dentists (including associates) who practice in the office where the name is used must be registered with the RCDSO as specialists in that branch of dentistry. So, if you are a periodontic specialist practice with the name “Smith Street Periodontics” who wants to hire a general dentist a few days per week – you might find yourself in some trouble. For further reading on mixed specialist and mixed general practice and specialist practice names, click here.
For further guidance on practice names, you can contact us or the RCDSO directly or visit them online for useful publications: www.rcdso.org.
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. We are your legal dental team.
Filed under Blog, Buying / Selling a Practice, Dental Marketing, Incorporating, Start Ups, Uncategorized · Tagged with associate, associates, dentist, dentistry, general practice, names, naming, naming practice, partnership, rcdso, rules, specialist, specialist dentists, specialty practice, specialty services
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.
A dental appraisal involves a person giving a monetary value to a dental practice. That person is typically a professional valuator (e.g. Matt Bladowski of Dental Strategy) or an accountant. They examine the assets of the dental practice (irrespective of whether the owner of the dental practice is a sole practitioner, a partnership, or a dentistry professional corporation). They will specifically look at things like:
Buying and Selling a Dental Practice
Appraisals are needed in order for parties to buy and sell a practice. The buyer wants to know what exactly they’re getting themselves into. The seller typically engages a professional valuator to review the practice and come up with the price. Purchasers, however, should be cautious about relying upon what the appraisal says: it was paid for by the Seller and for the Seller’s benefit (i.e. to get the best possible price). In fact, if the appraisers are also brokers, then they will have an incentive t put down the highest possible price. Purchasers should conduct their own diligence about the appraisal and get a chance to review the practice, its assets, and particularly its goodwill (i.e. dental records and patient charts).
Transferring assets to a Dentistry Professional Corporation
If you are a dentist and you want to transfer dental assets (e.g. lease, inventory, equipment, tools, supplies, leasehold improvements, etc.) which you owned personally into a dentistry professional corporation, you may want to get an appraisal done. You can’t just assign any old number for the asset purchase agreement when doing these kinds of deals. The Income Tax Act allows you to elect to transfer assets from your personal to your corporation on a tax-free basis (although there may be HST payable), but only if the price paid for the assets is FAIR MARKET VALUE. If the Canada Revenue Agency ever reviews the transaction, they may say that the value of the assets being transferred into the corporation and the shares taken back were below or above what the fair market value should have been. Hence, an appraisal (coupled with a price adjustment clause in the Agreement of Purchaser and Sale) may make sense here.
Adding Partners / Shareholders
An appraisal will be needed when a new dentist partner or shareholder is being admitted into the dental practice. How much should they contribute? How many units or shares should they take back? This all depends on what the dental practice is worth. Hence, the appraisal.
Appraisals could also be required when a dentist is going through a divorce. Absent a marriage contract, prenuptial agreement, or separation agreement to the contrary, the dentist will be required to calculate their net family property (i.e. generally the increase in wealth of a married spouse during the course of the marriage) in order to ultimately get to an equalization payment. I’ve blogged extensively about net family property and equalization payments here.
Once again, it is worth mentioning that the appraisal will be made by a professional for their client’s benefit. If the husband, for example, wants to reduce the value of their net family property (so they end up paying a lower equalization payment), then there will be an incentive for the appraisal to be on the lower-end of scale.
The case of David v. David,  O.J. No. 5022 is illustrative of how different appraisers can arrive at different figures. In that case, a wife sought an equalization of net family property. The wife was a homemaker and the husband was a dentist. When it came time to value the dental practice on the date of separation, both the wife and the husband had their own expert appraisers (the husband used Graham Tuck of Professional Practice Sales and the wife used Timothy Brown from ROI Corp.).
For his part, Mr. Tuck (the husband’s expert) examined the husband’s dental practice in detail. His 23 page report (excluding appendices) included the following information:
The appendix to the report included a list of dental equipment, practice financial statements, copy of lease agreement, photographs, information on area and demographics. Mr. Tuck had personally attended the practice, interviewed the husband dentist and his staff, reviewed patient charts, and conducted a patient chart count. He also compared the value of the husband’s practice with 8 similar practices sold that had an ethnic composition in the same geographic vicinity. He ultimately found that the dental practice was worth $212,000 – which included $65,000 of goodwill.
For his part, Mr. Brown (the wife’s expert) provided a 2 page limited scope forensic letter of opinion only and relied solely on the appraisal prepared by Mr. Tuck. Mr. Brown concluded that the goodwill could have been about $139,500 for the dental practice – much higher than Mr. Tuck’s opinion.
Now, just keep in mind that the wife (a homemaker) had been accusing her dentist husband of diverting income. Clearly, the wife wanted the value of the dental practice to be relatively high, while the husband wanted it to be relatively low.
The Ontario Superior Court of Justice ultimately fixed a midpoint value between the two opinions at $102,500 for the goodwill and a total value of the dental practice at $249,000 at the date of separation. In coming to that conclusion, the court took into consideration: the age and location of the dental practice, the patient base, the management style and office protocols of the dental practice, data from another similar practice which the dentist had previously sold, a commonsense and market comparison capitalization rate (i.e. the yield of income to capital).
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.
Termination by Notice or by Agreement
A partnership can end by notice or by a contractual term in the partnership agreement. This is where section 26(1) and 32(c) of the Partnerships Act becomes relevant.
Section 26(1) of the Partnerships Act provides that, where no fixed term is agreed upon for the duration of the partnership, any partner may determine the partnership at any time by giving notice to all the other partners. This section has been interpreted in Patridge v. Seguin,  O.J. No. 1355 to mean that, where the partnership agreement is silent as to the duration of the partnership, any partner may unilaterally terminate the partnership by giving notice. If, however, the partnership agreement provides for the termination of the partnership, then this section will not apply. As such, this section is subject to any agreement between the partners.
Section 32(c) of the Partnerships Act is similar to section 26(1). Section 32(c) states that, subject to any agreement between the partners, a partnership is dissolved if entered into for an undefined time, by a partner giving notice to the other partners of his intention to dissolve the partnership. This section is subject to any contrary agreement between the partners, whether express or implied. Furthermore, the words “undefined time” used in Section 32(c) does not necessarily mean an “indefinite period” (Keith v. Mathews, Dinsdale and Clark,  O.J. No. 1202). This section has been interpreted in Patridge v. Seguin and Keith v. Mathews, Dinsdale and Clark to mean that, where the term of the partnership is defined, then a partner may not unilaterally terminate the partnership by giving notice under this Section.
Termination by death, insolvency, charge on a partner’s share or illegality of business
A partnership can terminate through death, insolvency, charge on a partner’s share or illegality of business: ss. 33 and 34.
Termination by court order
Third, a partnership can be terminated by court order under section 35 of the Partnerships Act. This method of dissolving a partnership requires that an application be brought because a partner has been found to be mentally incompetent, permanently incapable of performing their duties, or guilty of conduct that prejudicially affects the carrying on of the business. An application to terminate can also be made on the grounds that the partnership can only be carried on at a loss.
In addition to these grounds for bringing an application, s. 35(1)(d) of the Partnerships Act allows a partner to apply to the court for an order dissolving the partnership on the basis that another partner has wilfully or persistently committed a breach of the partnership agreement, or otherwise so conducts himself or herself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with that partner. Courts have set a high threshold for dissolving partnerships in this manner: there must be a breakdown in the relationship as between the partners such that mutual confidence (i.e. trust and reliance) no longer exist. In essence, the partners cannot continue carrying on the partnership business together according to the original agreement: Barnabe v. Touhey,  O.J. No. 96 and Damis Holdings Ltd. v. Briarcrest Apartments Ltd.,  O.J. No. 672. Largely as a consequence of the agency relationship, and the capability of incurring joint and several liability for the remaining partners, partners are entitled to a very high standard of conduct as amongst themselves. Any breakdown in that relationship or conduct, such that the partners could not thereafter have reasonable trust and confidence in their partners, would generally be circumstances permitting the dissolution of the partnership. Keeping erroneous accounts and not entering receipts, refusal to meet on matters of business, continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly co-operation, have been held sufficient to justify a dissolution: Barnabe v. Touhey.
Finally, section 35(1)(f) of the Partnerships Act allows a partner to apply to the court for an order dissolving the partnership on the basis that circumstances have arisen which render it just and equitable that the partnership be dissolved. To obtain dissolution under this section, it must be established that there been such a complete breakdown and mutual trust and confidence among the partners as would preclude all hope of reconciliation and future co-operation: Barnabe v. Touhey (1992) O.J. No. 96, Kucher v. Moore (1991), 3 B.L.R. (2d) 50, PWA Corp. v. Gemini Group Automated Distribution Systems Inc.,  O.J. No. 723, and Ellerforth Investments Ltd. v. Typhon Group Ltd.,  O.J. No. 3714, aff’d  O.J. No. 1470. It must be impossible for the partners to place that confidence in each other which each has the right to expect and that such impossibility has not been caused by the person seeking to take advantage of it. Evidence of a deadlock or substantial disagreement on questions of day to day management of the operations will suffice: Landford Greens Ltd. v. 746370 Ontario Inc.,  O.J. No. 1311. A court may also order dissolution under this section on the grounds that the parties have very different views as to the future of the partnership; in other words, there has been a material change of circumstances which makes it impossible for the partnership to be carried on in the way the partners had originally contemplated: Ellerforth Investments Ltd. v. Typhon Group Ltd.
In a partnership, all partners are jointly and severally responsible for the liabilities of the partnership up to the total value of their personal assets.
Partnerships and limited partnerships are flow through entities. They are not legal persons. They don’t pay tax. Their income or losses flow through to the partners and are attributed to them. It is the partners who pay taxes, not the partnership or limited partnership. They are disregarded business vehicles. This differs from a corporation, which is considered to be a legal person separate from its owners and managers. Corporations are required to pay income taxes at both the provincial and federal levels.
A partnership or limited partnership is taxed in the following process. First, the parties involved have to recognize that they are operating as a partnership and not some other structure (e.g. joint venture, co-owning property, corporation, franchise, etc.). Then, the parties have to determine the income, losses, and tax credits at the PARTNERSHIP LEVEL. This requires a temporary assumption that the partnership is a separate person resident in Canada. Finally, once you figure out the income, losses, and tax credits, you ALLOCATE them to the partners. It is the individual partners who have to report (and, if applicable, pay taxes on) income, losses, and tax credits.
As per the Canada Income Tax Act, partnerships do not file separate tax returns. They file annual information returns setting out their income and details of the partners who are entitled to that income.
So to recap: the net income of the partners (for income tax purposes) of a limited partnership is determined by figuring out the net income of the limited partnership. To figure out the net income of the limited partnership, the Act says that you look at it as if it were a separate legal person: s. 96(1)(a). So you include income and deduct allowable expenses and other credits. Then, the partnership’s income will be attributed to the partners (usually as per the limited partnership agreement). Each partner must report their income or losses from the partnership and pay taxes accordingly: s. 96(1)(f).
For tax purposes (remember that partnerships must file an annual partnership information return after their fiscal period), the combined effects of ss. 96(1) and 249.1 of the Canada Income Tax Act make it clear that the fiscal period will be determined by the type of taxpayers (e.g. individuals, corporations, etc.) that make up the partnership group. If any member of the partnership is an individual, then the fiscal year end must generally be the calendar year end (with certain limited exceptions). If all of the members of the partnership are corporations, the fiscal year end can be anywhere, so long as the fiscal period does not exceed 53 weeks: s. 249.1(1)(a).
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.