Australasian Dentist Magazine Nov Dec 2021

Category 126 AustrAlAsiAn Dentist Not having a shareholder agreement can harm your practice Y ou can lead a horse to water …. you can lead a multiple owner dental practice to a shareholder agreement …. We are experiencing an escalation in dental clients who are 25%/50%/etc owners in their dental clinics having disputes with their fellow owners. life is becoming more litigious and your practice cannot be too cautious. What ongoing agreement is relevant for your practice? if the practice ownership entity is a company, a shareholder agreement is appropriate – if that company acts as trustee of a trust, a unit holder agreement is appropriate instead. the below commentary also extends to partnership and associateship structures. A shareholder agreement for multiple owner dental practices will assist in: u formalising practice strategies (operational and professional); u setting out appropriate pre-emptive rights to purchase fellow owners’ shares; u detailing enforceable practice restraints; and u addressing administrative/staff control, termination (from retirement, incapacitation etc) it secures the lifespan of the practice. We always recommend a shareholder agreement be entered into prior to the shareholders entering into practice together and we ensure that the shareholder agreement adapts correctly to the dentists and their practice structure – rather than an off the shelf agreement. So how does not having a shareholder agreement harm our practice? Well, without a shareholder agreement, guidance for shareholders is then directed to the company’s constitution. A shareholder agreement acts as the superior document to the constitution – however, without the shareholder agreement, the shareholders are left guided by a constitution that may not necessarily be prepared with a dental purview, but a generic business view. so, when there are disputes, minor or dramatic, broad or specific to the dental practice, there is commonly either no guidance within off the shelf constitutions or indeed clauses which may act to the detriment of the specific dispute. Harmful? Case study please! Consider a dental practice ownership structure of four dentists – each with 25% shareholding in a company, and one vote each in decision making. Generic constitutions satisfactorily provide for a chairman to steward board meetings, but usually also allows the chairman what is known as a casting vote – an additional vote to their own. so, a 50/50 split decision can be overridden by the casting vote …. is this really something that your practice can afford? Factional decisionmaking, particularly when there are shareholder disputes, can be turbulent for the shareholders and it may be in their best interest to remove the casting votes to avoid unwarranted or factional decisions being made. there still needs to be provision for these deadlocked circumstances however deadlocks need to be drafted fairly in the shareholder agreement. Furthering this four dentist example, one dentist now wants to sell their 25% interest. it is critical that the shareholder agreement contains guidance for the selling shareholder to sell their shares either to the remaining three dentists or an independent dentist prepared to enter into the practice group and shareholding structure. Whilst rights of pre-emption or options to purchase the shares for the remaining dentists are included in shareholder agreements, they are not necessarily spelt out in constitutions. therefore, satisfactory completion of selling shares and managing the shareholder’s exit (due to retirement, negligence, death etc) is usually easier to accomplish when a shareholder agreement is in place. this removes arduous challenges which can be caused by a silent constitution. Critically, constitutions do not contain practice restraints on their shareholders, nor non-solicitation of patients/employees clauses – shareholder agreements do. Consider this vitally fundamental item that is lacking without a shareholder agreement and the ramifications that could occur in the event that the relationship between your shareholders broke down. Our clients without shareholder agreements who are currently involved in shareholder disputes are truly regretting that they did not invest in a shareholder agreement – and some are paying for it dearly. if you are a multiple owner dental practice, have that sinking feeling that a dispute (over a valuation, possible sale, practice restraint issues) is looming, or you are ready to secure your practice structure (regardless of whether your practice is 15 years or 15 months old), Whitehead legal is ready, willing and able to assist drafting a bespoke shareholder agreement for the company on behalf of all shareholders. u Julian Whitehead is a partner at Whitehead Legal and he exclusively advises health care professionals in their commercial matters throughout Australia. Julian can be contacted on 0411 406 151 or via email julian@whiteheadlegal.com. au or visit www.whiteheadlegal.com.au . Don’t forget to listen to The Health Lawyer Podcast with Julian Whitehead. legal Julian Whitehead By Julian Whitehead