Assets vs. shares of a dental practice: what do buyers need to know? – Kate BeechFeatured Products Promotional Features
Posted by: The Probe 6th July 2018
Buying a dental practice is not simply a huge commitment to any dentist, but one that is fraught with detrimental consequences should anything go wrong. In order to be fully prepared for a sale, there is a lot to consider, particularly as buying a dental practice can prove to be a complicated and lengthy, legal process. It is important that practitioners take the time to really understand what it is they are buying, and at what cost they are paying beyond the price tag.
There are essentially two ways to buy a dental practice, which are categorised as either a share sale or an asset sale – and there are elements to consider with both. A share sale involves the purchase of the shares of a company in order for a buyer to obtain ownership, whilst an asset sale involves purchasing some or all of the assets owned by a seller (who can be an individual, a partnership or a company). Since these two types of sales each have unique tax and liability implications for both seller and buyer, it is crucial that parties to the sale ensure they understand the difference between the two from the outset.
In an asset sale, buyers are able to ‘cherry pick’ which assets to acquire, or leave to the seller. There is also less due diligence to be carried out in this type of sale, as buyers are simply taking on the assets – although they do need to be thoroughly checked, and the true value of them determined, the buyer is typically protected from current and future liabilities arising as a result of how the practice was run prior to them taking over. These liabilities may include disputes from former employees, contract disputes, and Care Quality Commission (CQC) violations. The buyer is responsible for only those contingencies that arise subsequent to the sale.
Buying the assets of a dental practice can also trigger TUPE [Transfer of Undertakings (Protection of Employment) Regulations 2006]. The buyer may be responsible for taking on all the employees of the business on the same terms they enjoyed before – if TUPE does apply then it can be a considerable liability for a buyer to take on.
Unlike an asset sale, a share sale means that the buyer simply takes the place of the seller in the ownership of a dental practice – from a seller’s perspective, this is the simplest and cleanest sale. Subject to any deal they have made with the buyer to provide a limited period of support or handover, the seller is free of the business, and they are able to take advantage of Entrepreneurs’ Relief.
Buyers, in turn, can benefit from the smooth transfer of relationships such as those held with suppliers, patients, and banks, so there is no interruption to the workflow of the business. By acquiring shares, the buyer also attains a clean title to everything that is in the company name.
Buying shares, however, can prove a lot riskier for the buyer, particularly as they are taking on all the liabilities of the practice, and the true nature or cost of some of those liabilities may not be immediately apparent. There are also those instances where a purchase can include a mix of an asset deal and a share deal, and this occurs where the NHS Contract is in the personal name of the seller, and not in the name of the company.
Given this additional risk, it is paramount that buyers make appropriate, detailed enquiries about the assets or shares they are purchasing. Goodman Grant can help in this regard, as they provide specialist legal services to the dental profession. They will carry out far more extensive due diligence checks into the financial, commercial and legal position of the business in question.
There is no right or wrong way to purchase a dental practice. Once you have established what it is you are buying, and from whom, all the terms of a deal are subject to negotiation. It is always wise to seek professional advice and guidance in the negotiation of these transactions in order to avoid any pitfalls.
Kate Beech of Goodman Grant Solicitors – contact on KB@goodmangrant.co.uk
For more information visit www.goodmangrant.co.ukor contact your nearest office:
London: 0203 114 3133
Leeds: 0113 834 3705
Liverpool: 0151 707 0090
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