The Associate Buy-In

One specific type of partnership that is worth some additional attention is the associate buy-in. This is where an associate begins working for a more experienced dentist, with the promise of an eventual partnership or full ownership of the practice. This particular situation can lead to some unique problems. In many cases, if there is no binding agreement, one or both parties may have a different understanding of the agreement. This can lead to disappointment at best and legal action at worst.  Therefore, the best course of action is to retain a healthcare attorney before you enter into an associate buy-in agreement.

Is An Associate Buy-In Right For Me?

Although the associate buy-in can work well in certain circumstances, it does not always fit.  Both the owner and the associate must have some level of trust in each other.  If the parties have disagreements over treatment, or if they question each other’s skill, or if they simply do not get along, a partnership likely will not work.  If the dentists have not worked together before, I typically recommend that there be a probationary period of at least a few months so that each side can make sure they want to proceed with the associate buy-in agreement.

Do I Need To Have A Written Agreement?

You do not have to have a written buy-in agreement.  However, if you do not have a written agreement detailing the terms of the associate buy-in, you may be left without a remedy if the other side decides not to go through with the deal.  This is important for both sides.  For example, if the selling dentist decides to bring on an associate as part of a retirement plan, but at the last minute the associate backs out, the seller may have to work longer or take a less advantageous deal.  Conversely, if the associate works for several years under the promise of a partnership, and the seller backs out, the associate may have to start all over at a different practice.

Ideally, the written agreement will set the parties’ expectations at the outset of the associate buy-in process. The agreement also gives each party a remedy if the other side backs out.  In order to make sure your associate buy-in agreement is enforceable, though, you should work with a healthcare lawyer.

What If Circumstances Change?

This is a frequent concern, as the associate buy-in typically looks at the associate buying into the practice at some point in the future.  Problems can arise if circumstances change over time.  For example, the associate may not have enough to buy the ownership interest in the future.  Also, one of the parties may die or become disabled before the buy-in date, the practice could become more (or less) profitable, or other life events may derail each side’s plans.  You will want to have strategies in place that will take these into account.

How Does The Associate Buy-In Work?

This will really depend on the parties, but there are several strategies. One that may work for some parties is to have the associate buy in over time.  Under this scenario, the associate may buy ten percent per year for five years, for example. The price could either be a set amount or based on a formula. This allows the owner to maintain control, but eases the associate’s burden of coming up with the entire purchase price. If the practice is set up as an LLC, this will require amending the practice’s operating agreement and articles of organization to admit the associate dentist as a member.  This may also require further amendments over time, as the associate’s ownership interest changes.

Another strategy that can work is to allow the associate an option to purchase. This allows the associate to buy in, but only if he comes up with the money to do so within a set period. If the associate does not do so, the owner is not obligated to sell. Conversely, the owner can give the associate a right of first refusal. That way, if the owner decides to sell, the associate will be first in line to buy the practice.  If the associate does not want to buy the practice, he does not have to. Another option may include deferring compensation. This can work if the associate is concerned about financing. The owner simply pays the associate less over time and applies some of the pay to the purchase price.

There are many different ways to structure buy-ins.  The important thing is that it works for both sides.  If you have questions, please feel free to contact one of our attorneys directly.

Disclaimer

This post is for informative purposes only and should not be used as a substitute for consultation with a licensed attorney. It provides general information and a general understanding of the law, but does not provide specific legal advice. No attorney-client relationship is created by the posting of this information.  If you have specific legal questions after reading this post, you should contact a licensed attorney.