With depressed property prices and the offer from funders of relatively easy finance for dentists at low interest rates, despite the general economic gloom there may not be a better time to contemplate a buy-out of your practice, if it is for sale.
However, as you are no doubt aware, a buy-out is a complex legal commercial transaction. So what do you need to consider?
Agreeing the best commercial terms
It is often better to involve a third party professional to negotiate any terms. Not only can this help to secure you the best possible deal, but this can introduce a degree of separation between the partners and the transaction and help to avoid difficult situations arising between the parties.
Choosing the right structure to make the acquisition
Will you acquire the business as a limited company, a limited liability partnership, a partnership or sole trader? The answer will largely depend on whether you are acquiring the business alone or with others. If you are acquiring the business alone, then your only options are to buy it as a limited company or as a sole trader. If more than one of you is acquiring the business, you could consider a partnership or a limited liability partnership.
Tax is crucial and you must obtain specialist tax advice at an early stage on the relative merits and downsides of each option, and the tax reliefs that may apply.
Each alternative will produce a distinct set of legal issues. For example, a limited company structure will require articles of association and a shareholders’ agreement tailored for your purposes, whilst a partnership/limited liability partnership structure will require a partnership or members’ agreement.
Your chosen structure must comply with the legislative framework for dentists. Furthermore, any CQC issues and the potential impact on your NHS contract will need to be addressed.
Engaging with your chosen funder at an early stage
Depending on the strength of your business plan, while other Small and Medium Sized Enterprises (SME’s) and the general public struggle to secure lending, you may be able to obtain 100% finance.
The commercial terms of the finance arrangements will be set out in the funder’s facility letter which will be issued in conjunction with a legal charge (mortgage).
Provided your solicitor is on the bank’s panel of specialist solicitors, your solicitor should be acting not only for you but also for the bank (saving you money and time).
The real estate in the business is likely to be its biggest financial asset. To receive any finance, the solicitor representing the bank will need to complete a certificate (in a standard form) confirming the property has a good and marketable title and does not present any risks to the bank, should the bank need to enforce their security. Accordingly, the solicitor will need to undertake property due diligence. Depending upon the risks revealed, this could impact upon your ability to secure finance.
Common premises issues
There are a variety of issues that often arise. Besides wanting to ensure that the extent of the premises as shown on any title plan accords with your understanding of them, and there are sufficient rights of access and exit from your property, your solicitor will also be identifying any restrictions on the title that may prevent any particular use of the property for certain purposes. For example, there could be a prohibition on certain types of development or a property’s use. Whilst there are often legal solutions to such restrictions, these generally require time and money to resolve. At worst, they could require you to rethink some of your plans.
Your solicitor will also want to review the property’s planning history and ensure that the property can be lawfully used for the purposes of a dental practice.
Depending upon the value of the transaction, Stamp Duty Land Tax (SDLT) may be payable. If a share sale is involved, SDLT will be payable on the value of the shares.
TUPE and HR issues
When purchasing a business, you will automatically acquire the staff employed as employees. This is because the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) applies. Under TUPE, you will also become responsible for an employee’s entire employment history in the business.
The sale and purchase legal process should include employment due diligence to identify exactly what you are assuming. Consequently you should check that your solicitor, as well as having the necessary corporate and property expertise, is experienced in dealing with employment issues.
Dental buy-outs are complicated and good professional advice is vital. The Lester Aldridge specialist team, headed by Partner Susan Cowan and supported by Partner Guy Morgan, has many years of experience of representing dental practices in buy-outs and can help to structure the best possible deal for you.