4 Essential Legal Strategies for Dentists as They Grow

Whether you're looking to scale your practice, reward your top talent, or plan for a lucrative retirement, navigating the business and legal side of dentistry is crucial. The following four strategies—from incentivizing your team to owning your real estate—are the keys to maximizing your practice’s value and ensuring a smooth transition when you’re ready for the next chapter.

1. Incentive Equity: The “Crawl, Walk, Run” Strategy for Talent Retention

Incentive equity is a powerful tool to retain key employees (like associate dentists, hygienists, or practice managers) by motivating them to think like owners, aligning their interests with the practice's long-term success.

At Stock Legal, we very regularly recommend a Crawl, Walk, Run approach:

• Crawl: Phantom Equity

-This is a cash-based incentive tied to the practice's value, but it grants no actual ownership in your company.

-It's a low-risk way to test the waters and assess if a recipient is a good fit for future ownership.

-Works for anyone on your staff.

• Walk: Incentive Equity

-This involves actual ownership in your company typically with a milestone vesting schedule to align interests and ensure long-term commitment.

-Vesting schedules ensure the equity is earned over time, typically 3–5 years, which boosts retention.

• Run: The Buy-In

-After the dentist has proven they can act like an owner, you can move to formal buy-in discussions.

When is it time to offer incentive equity? When you have high-performing associates you want to keep, you're planning expansion, or you're beginning to think about your own exit strategy.

2. Should You Build Your Own DSO?

Building a Dental Service Organization (DSO) means creating a separate management company to handle all the non-clinical business operations for multiple dental practices. This strategy is perfect for dentists with significant growth ambitions who already own two or more practices.

The top reasons to build your own DSO include:

• Maximizing Exit Value: Aggregating multiple practices significantly increases the overall enterprise value, making it a more attractive asset for private equity or larger DSOs.

• Economies of Scale: You achieve centralized purchasing power for supplies and consolidate back-office functions like HR, billing, and marketing, reducing per-practice costs.

• Talent Attraction: You can offer more robust benefits and clear career pathways for associates.  Incentive equity is offered at the DSO level allowing for larger distributions for contributions throughout the aggregated practices.

Legal Structure is Key: To comply with state dental practice acts, your DSO must service practices through a Management Services Agreement (MSA). The DSO provides all non-clinical support, while the individual dental practices remain separate legal entities owned by a licensed dentist, thus maintaining clinical autonomy.

3. Real Estate: Protect Your Wealth with a Liability Firewall

Owning the real estate where your dental practice operates is a viable way to build equity and wealth while gaining control over your long-term plans. However, owning the real estate and the practice in the same entity presents a serious legal risk, known as the "One Bucket" risk.

The Strategic Solution: Create a Legal Firewall

You must legally separate your assets to limit liability. This is done by establishing two distinct entities:

1. Operating Company: The dental practice entity, responsible for clinical operations and revenue.

2. Real Estate Holding Company: A separate legal entity (often a LLC) that owns the property.

The Operating Company then formally leases the property from the Real Estate Holding Company via a formal Lease Agreement. This "firewall" means a major malpractice claim against the dental practice generally cannot seize the real estate, and vice-versa.

4. Navigating the M&A Process (Sell Side)

Selling your practice is a complex, multi-stage process that demands careful preparation and an experienced team.

• Preparation: You must assemble your team (attorney, CPA, broker, exit planner) and optimize your practice by cleaning up financials and ensuring all equipment is updated. The key pitfall to avoid is insufficient due diligence preparation.

• LOI: You'll receive offers and negotiate the non-binding Letter of Intent (LOI), which outlines the price, deal structure, and exclusivity. Crucially, never sign an LOI without legal review (even if non-binding), as it can tie you to unfavorable terms early in the process.  

• Due Diligence: This is the buyer's extensive investigation into your practice's financial, legal, and operational records. Be transparent and organized and be sure to address any regulatory compliance issues (like HIPAA or state board rules) immediately, as failure to do so can terminate the deal.

• Definitive Agreements: This final stage involves negotiating and drafting the legally binding Purchase Agreement and all supporting documents (employment contract, non-compete). The most critical legal pitfall here is vague contract language, especially regarding representations, warranties, indemnities, and earn-outs.

Final Takeaway: The buyer will have experienced counsel. It is critical that you have a strong legal advocate to protect your interests, negotiate terms, and ensure you maximize your value and minimize your post-closing liability.

Ready to Plan Your Practice's Future? Reach Out to Stock Legal.

From entity formation and contract review to commercial real estate and a high-value exit, Stock Legal supports dentists in all their routine and strategic legal needs. The firm brings sophisticated legal experience combined with a true business partner approach, helping you navigate the complexities of practice ownership with fixed-fee, approachable, and creative representation.

Don't navigate the legal landscape of dentistry alone. Get in touch with the experts at Stock Legal today!