If you’re buying a dental practice, you’re probably thinking: where do I start? Well, there are many legal matters to think about, so let’s get started, shall we?
1. You’re likely buying via a PC
Generally, a purchaser of a dental practice will do so through a dentistry professional corporation; there are tax and legal benefits to doing so. Before the purchase can be made, however, that corporation will need to be created and obtain a Certificate of Authorization from the RCDSO. A corporation cannot carry on the practice of dentistry without one of these Certificates. Make sure to contact a lawyer and an accountant to make sure that the corporation is properly set up (e.g. articles of incorporation are drafted and filed with appropriate share structure and in light of relevant dental laws, shares are issued to the dentist and their family members, a shareholders agreement is drafted and entered into between the dentist and their family members, a trust for minor children is created, etc.). At the end of the day, there should be a paper trail that shows that a dentistry professional corporation has been fully created and organized in light of relevant dental laws.
2. Your PC is likely buying shares of another PC
Dentists will typically want to sell shares of their dentistry professional corporation. Simply put, there are significant tax and legal advantages to doing so. What does that mean for the purchaser? Well, he or she will need to review that corporation’s governing documents, records (as found in a minute book) and agreements with other parties to ensure that all the corporation’s affairs are in order. What kinds of things should the purchaser be looking for? Well, here’s a non-exhaustive list:
- Articles of Incorporation with Certificate of Incorporation (the original incorporating documents, which should be in compliance with all dental laws concerning a dentistry professional corporation);
- Status Certificate (showing the corporation exists as of a certain date);
- Certificate of Incumbency (showing who the officers and directors are with authority to act on behalf of the corporation);
- Minute book (a binder with all corporate records and documents);
- Share Certificates;
- Director and shareholder meeting minutes;
- Director, officer, and shareholder registries;
- Shareholders Agreement (if there are multiple shareholders);
- Certificate of Authorization from the Royal College of Dental Surgeons;
- Audited/unaudited financial statements of the corporation for the past few years;
- Any appraisals conducted in respect of the corporation; and
- Contracts with employees, independent contractors, landlords (i.e. lease), vendors/suppliers, etc.
3. What about the Purchase Price?
The purchase price may be determined in light of a valuation having been conducted. The seller will typically arrange to have this done and pay for the cost of doing so. There are appraisal companies out there who do this all the time, such as ROI Corp. and Professional Practice Sales. Remember to keep in mind that the appraisal is typically done for the benefit of the seller, so the price will reflect that.
4. Successor Employer
Under the Employment Standards Act, 2000, a person who purchases a business becomes a successor employer. In other words, they inherit the liabilities associated with the previous owner’s employees when it comes to things like giving proper notice or payment in lieu thereof if the employee is going to be terminated. Just take a look at section 9:
Sale, etc., of business
9. (1) If an employer sells a business or a part of a business and the purchaser employs an employee of the seller, the employment of the employee shall be deemed not to have been terminated or severed for the purposes of this Act and their employment with the seller shall be deemed to have been employed with the purchaser for the purpose of any subsequent calculation of the employee’s length or period of employment.
OK, so where does that leave the purchasing dentist? Well, they can factor in the cost of terminating the employee(s) they don’t want to keep into the PURCHASE PRICE. Alternatively, the purchaser can be told to terminate all of the employees, pay them proper notice, and then the dentist purchaser can hire them on new. Finally, the dentist seller can provide a promise to pay (i.e. an indemnification) for some of the notice or payment in lieu of notice that the dentist purchase would pay to terminate an employee; that payment from the dentist seller could be attributable to the portion of notice or payment in lieu of notice that the seller dentist would have otherwise had to pay. So here are some interesting options.
In the next blog, I’ll discuss other factors and considerations a purchasing dentist should be mindful of.