Volume 28: Partnerships and Shotguns

Download the PDF version now!

As I have stated before, I am not a big fan of partnerships but maybe that’s because I’m prejudiced by my experience with poor partnership agreements. Only recently I’ve had to deal with a couple of partnerships in trouble – mostly because of the poor to impossible partnership agreements. If the partnership is in trouble there should be a provision to have it dissolved in a fair and amicable way.

I feel this can be arranged by a well written “shotgun clause” that would be valid in a number of potential changes in partnership. A “shotgun” is an escape hatch mechanism. In a shotgun arrangement, when one shareholder makes an offer, the shareholder receiving the offer can either accept or not. If the offer is not accepted, then the shareholder who turns down the offer, in turn, must buy the other partner's interest for the same terms as the original offer. It is harsh, but it provides protection for both parties and a mechanism to exit as well as to determine price and terms.

In any separation there should be provisions for unequal size partnerships where one partner’s practice is small and the other’s considerably larger. The concept of a single offer fixed value to accept or turn the shotgun around would not be fair to both parties. There should be recognition that the value of one practice needs a modifying factor to reflect the difference in values of the partners. To think that one partner sets a price and the other partner must accept or offer the same price for his partner’s practice is not fair. Potentially, an offer as a percentage of last years gross would be fairer; i.e., 90% of the other partners last years gross (on $500,000 gross the other partner would offer 90% or $450,000). But if the other party wished to pick up and reverse the shotgun he would have to pay 90% of his partners gross (say 90% of $700,000 = $630,000). The $630,000 reverse offer would be a fairer relationship if the partnership is going to be dissolved.

You would be surprised how many partnership agreements do not even have a shotgun clause. In fact you would be surprised how many partnerships do not even have an agreement with provisions for separation. And I’ve even dealt with a few partnerships where a Partnership Agreement doesn’t even exist. Good shotgun clauses make fairer relationships in a separation situation.

Professional Practice Sales drafts many agreements, such as Agreement of Purchase and Sale or Associate Agreements and we always recommend that all new partnership or cost- share agreements be drafted by an experienced lawyer specializing in dentists’ legal issues. It should be unique to the two or more partners who are forming the partnership or cost-share. The agreement should lay out a resolution for as many potential changes as possible with a fair outcome. There should be a provision for such things as altering the profit sharing arrangement when circumstances between the partners change – such as one doctor wishing to cut back a day or two a week. Partners should review their agreement about every five years to ensure that it is still as valid as when they formed the partnership.

The Professional Advisory

  1. One Year Later

  2. Dealing with Unsolicited Offers

  3. Covid-19 Practice Sales Update

  4. When is the Right Time to Sell Your Practice and Why?

  5. Partnership Pitfalls

  6. The Real Cost of a Dental Practice Set-up

  7. Smaller Practice Realities

  8. Dental Market Update - 2019

  9. Creating Your Own Most Valuable Practice (MVP)

  10. Small Practice Economics

  11. The Market is Very Efficient

  12. How Can Dental Practice Values be Rising and Declining?

  13. Hygiene as a Value Driver

  14. The Value of a Good Team

  15. Is it Time to Move?

  16. Staging A Dental Practice

  17. The High Cost of Dying

  18. Deal-Busters

  19. Patients - Attract and Retain

  20. Should I Stay or Should I Go?

  21. Is There a Buyer for Every Practice?

  22. Good, Better, Best - The Market has Spoken

  23. Smooth-Sale-ing

  24. Buying Time

  25. Patients, Patience, Patients

  26. A Real Patient

  27. Why Do a Practice Valuation? I'm not Selling

  28. Irrational Exuberance or The New Normal?

  29. Do dental equipment and dental technology affect a practice value?

  30. Finding and Being a Mentor

  31. Bigger is Better

  32. Dave's Top Ten List for Buyers (Vendors should read this too!)

  33. How Well Do You Know Your Practice?

  34. Dave's Top Ten List for Vendors

  35. What will happen to dental practice Values in the next 10 years?

  36. Your Premises Lease is an Important Asset

  37. What are Associates Thinking?

  38. There is Life Outside the GTA

  39. When Is the Right Time to Sell My Dental Practice?

  40. Mergers are a Viable Option

  41. Is Your Associate an Asset or a Liability?

  42. Has your Practice Facility Kept Up With Your Billings?

  43. The 100 per cent of Gross Myth

  44. The Past, The Present and The Future

  45. Caveat Emptor

  46. Overpaid Long Term Staff

  47. Selling your Practice in Stages

  48. A Potential Pitfall of Selling Shares

  49. Value in Your Practice Through Balance

  50. Only Trusted Staff Can Defraud You

  51. To Own or Not to Own Practice Real Estate? That is the Question.

  52. Coping With A Large Patient Base

  53. Successful Dental Practice Transitions

  54. Taking Care of Business

  55. The Investing Dentist Phenomenon

  56. Two areas to focus upon that could negatively impact the value of your practice

  57. Organize your Debt in Order to Sell your Practice

  58. Having a Better Team

  59. How Do I Prepare My Practice For Sale

  60. How Do I Prepare My Practice For Sale? Part 3

  61. How Do I Prepare My Practice For Sale? Part 2

  62. How Do I Prepare My Practice For Sale? Part 1

  63. Advice to My Son or Daughter Graduating from Dental School

  64. Transition - What to Expect

  65. Discussion on Digital X-Rays

  66. Partnerships and Shotguns

  67. Strategic Planning - How to Get Started

  68. Calling All Vendors - Practices have Gone Up in Value

  69. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates

  70. Matrimonial Practice Valuations

  71. Purchaser's Guide to Affording a Practice

  72. Location Improvements Throughout Your Career

  73. Small Practice Valuations

  74. Partnerships – The Best and The Worst

  75. Changing Location When the Opportunity Comes Along

  76. Visual Presentation of Your Practice

  77. Presentation of Charts

  78. Your Premises Lease Can Be Your Worst Enemy

  79. How to Select an Appraiser for Your Practice

  80. How Are Your Billing Ratios?

  81. It Pays to Invest in Your Tangible Assets

  82. The Importance of Separate Financial Statements

  83. Five Time Frame Levels to Sell a Practice

  84. 12 Suggestions to Safeguard Computer Data

  85. How to Buy a Visible Practice

  86. Why is there a shortage of good practices today?

  87. The Importance of Equipment in the Purchase of a Practice

  88. The Balanced Practice

  89. Will My Practice Be Saleable in The Future?

  90. Buyer Be Aware

  91. Excess Profit - The Second Key

  92. Patients and Profits are the Keys

  93. Plan Ahead