Partnership Agreements for Dental Practices: Key Terms to Get Right

Forming a partnership or adding a co-owner to a dental practice can be one of the most rewarding moves in a dentist's career. It can also be one of the riskiest when the arrangement is built on a handshake instead of a written agreement. A partnership or operating agreement is the legal backbone of a co-owned dental practice. It defines who owns what, who decides what, and what happens when someone wants — or needs — to leave.

Here are the key terms every agreement should address.

Ownership and Capital Contributions

Start with precision: what percentage does each owner-dentist hold, and what did each contribute to earn it — cash, dental equipment, an existing patient base, or sweat equity? The agreement should also set expectations for future capital calls. If the practice needs new operatories, imaging equipment, or a leasehold improvement, are owners required to contribute pro rata, or can they dilute? Answering this up front prevents arguments later.

Management, Voting, and Decision-Making

Most day-to-day decisions belong to the managing partner, but major decisions — hiring an associate dentist, signing a lease, taking on debt, selling the practice — should require owner approval. Define the voting thresholds clearly. A simple majority works for many practices, while some reserve a supermajority for extraordinary actions. The agreement should also name who can bind the practice in contracts and bank accounts, so a single owner cannot commit everyone to obligations the group never approved.

Compensation and Distributions

Owner-dentists often wear two hats: employee and owner. The agreement should separate these roles. Set how owner-dentists are paid for their clinical production — salary, draw, or a production-based formula — and separately, how profits are distributed at year end. Without this distinction, owners can disagree over whether a payment is wages for work performed or a return on ownership, creating friction at tax time and beyond.

Buy-Sell Provisions and Exit Planning

Every partnership eventually ends — through retirement, disability, death, or disagreement. The buy-sell section is the most consequential part of the agreement, and it is the one owners most often skip. It should identify the triggering events, how the departing owner's interest is valued, and whether the remaining owners or the entity itself has the right — or obligation — to buy that interest. Include a clear valuation method: a fixed formula, a periodic appraisal, or a pre-agreed multiple of earnings. Also address payment terms. Few practices can absorb a lump-sum buyout without strain, so installment terms, interest, and security for the note should be negotiated now, not in the middle of a departure. In today's dental market, the agreement should also address DSO affiliation: whether owners may sell to a dental service organization, what approvals are required, and how a DSO transaction affects valuation and non-compete obligations.

Non-Compete and Confidentiality

Partnership agreements for dental practices should address what happens to the patient relationships and goodwill if an owner-dentist leaves. California's rules on non-competes differ from those of many other states, and dental transactions add layers of complexity, including corporate practice of dentistry restrictions on who may own a practice. A departing-owner covenant must be carefully tailored to the jurisdiction and the entity structure to be enforceable. Confidentiality and patient-record protections should survive departure regardless.

Dispute Resolution

Even good partners disagree. Rather than leaving conflict to a courthouse, many agreements include a tiered dispute process: negotiation between owners, then mediation, and only then binding arbitration or litigation. Consider whether certain deadlocks — such as a failed buyout — should trigger a buy-sell "shotgun" clause, where one owner names a price and the other chooses to buy or sell at that price. It is a blunt tool, but it resolves impasses that would otherwise paralyze the practice.

Final Thoughts

A partnership agreement is not just paperwork; it is the operating manual for the business and the safety net for each owner. Reviewing and updating it periodically — after adding a partner, opening a location, or renegotiating a lease — keeps it aligned with how the practice actually runs.

This post is for informational purposes only and is not legal advice. For guidance tailored to your practice, contact Mostofi Law Group at 1-866-247-9420.