Warning Signs to Watch for in Dental Practice Purchase Agreements
Purchasing a dental practice can feel like a huge step forward. You may even be thinking about long-term growth and acquiring new patients. Before signing a purchase agreement, however, it is important to review the financial and legal terms related to the transaction very closely. These agreements can often include provisions that transfer any risk to the purchaser in ways that are not always obvious. Carefully reviewing the contract can help you identify issues before they become legal matters.
Vague Representations
Representations in purchase contracts are formal statements of fact made by one party to the other to entice them into entering into the agreement. These contracts sometimes include incomplete representations about patient records, finances, equipment, and more. Representations that include vague language should raise concerns. Look for specific wording involving important issues such as:
- Ownership of assets, such as equipment
- Accuracy of financial statements
- HIPAA compliance and adherence to state dental regulations
- Pending lawsuits, investigations, and audits
- Payroll practices and employee classifications
Agreements also sometimes try to limit the seller’s responsibility by capping damages or shortening the timeline to file claims. Provisions that only give you a few months to uncover issues can leave you liable for expensive issues that are not found until later on.
Inherited Liabilities
Depending on how your transaction is structured, you may inherit liabilities, such as debts, from the seller. These liabilities are often as follows:
- Unpaid payroll taxes
- Outstanding vendor contracts
- Insurance repayment demands
- Employee wage and hour claims
- Equipment financing obligations
- Patient refund disputes
Ensuring proper due diligence can allow you to identify these issues before signing. It is important to carefully review tax returns, financial statements, and other records before committing to the final purchase.
Restrictive Covenants
Provisions outlining restrictive covenants can limit when and where the seller can establish a competing practice after the sale. A properly executed non-compete agreement can provide protection for the goodwill you bought with the practice. However, it is critical to ensure that these provisions comply with state and federal law. Your attorney can review all agreements to look for:
- Time limitations that are excessive
- Geographic restrictions that are overly broad
- A definition of competition that is in vague terms
- Provisions outlining allowed patient solicitation practices
- Restrictions that impact future partners or associates
- Non-solicitation clauses for employees
For example, a provision that prohibits the seller from practicing in the vicinity of the current office may be challenging to enforce because the term does not include a clear definition. Some contracts also include limitations that impact future referral arrangements or practice expansion.
Our Dental Practice Purchase Attorney Can Review Your Agreement
Before signing any agreement, it is critical to allow our dental practice purchase attorney to review it first. At AGS Law, our experienced attorney can review your contract to identify any potential issues and ensure they are resolved before you move forward with the purchase. Call us now at 801-477-6144 or contact us online to schedule a consultation and to get the legal help you need.