Dental Partnership Dissolutions: Winding Up the Practice’s Business and Affairs

     In Part I of our article titled Dental Partnership Dissolutions: A Multitude of Operational, Legal, and Tax Issues to Consider, we raised some of the typical operational issues that the partners of a dental practice will need to consider when dissolving their partnership. To avoid a potential dispute between the partners post-dissolution, a well-crafted partnership dissolution agreement will not only address operational issues like the separation of partnership assets, liabilities, and employees, but it will also address the partners’ rights and obligations in connection with winding up the practice’s business and affairs after dissolving the partnership. Under Ohio law, a partnership may continue after dissolution only for the purpose of winding up its business, and the partnership is deemed to be terminated only when the partnership’s business is complete. In a dental practice partnership, the partners will need to take a number of steps to properly wind up and complete the practice’s business.

Collection of Partnership Accounts Receivable

     After dissolving the partnership, the dental practice will presumably continue to receive payments for treatment that the doctors provided to patients before dissolving. The dissolution agreement should provide a specific process for collecting and applying payments to the Partnership’s receivables. If not properly addressed in the dissolution agreement, the collection of accounts receivable could result in a major dispute, especially where the doctors are continuing to practice separately post-dissolution. For instance, the dissolution agreement should specify that any payments received on the partnership’s accounts will be credited on the FIFO (first-in, first-out) method—with certain exceptions—so that the first payment received is credited against the earlier charge. This will prevent each doctor from applying payments to treatment that the doctor provides post-dissolution, instead of the partnership’s account.

Payment of Partnership Liabilities and Expenses

     Funds collected from the partnership’s accounts receivable during the winding-up phase, along with any funds remaining in the partnership’s bank account at the time of dissolution should be used to pay all of the partnership’s liabilities and expenses arising from activity that occurred prior to the dissolution, and any of the partnership’s expenses incurred in winding-up the practice. Expenses incurred in winding-up the practice may include expenses such as accounting fees related to filing final tax returns, legal fees relating to preparing the dissolution agreement and closing various state and federal accounts, and IT fees relating to the transfer of data from the partnership’s computer system. Only after the partnership’s liabilities and expenses of winding down are paid in full would the remaining funds, if any, be distributed to the partners.

Termination of Partnership Employees

     It is important during the winding-up phase that the partnership take formal action to terminate its employment relationships with the partnership’s employees. This is true even if the doctors will continue practicing separately and intend to hire individuals formerly employed by the partnership. That is, the partnership should provide each employee with a written notice advising the employee that he will no longer be employed by the partnership as of a specific date. Each doctor would then cause his separate dental practice entity to hire the employees that he intends to keep. A well-drafted dissolution agreement will attach a copy of the agreed upon termination notice to the agreement, so that there is no dispute regarding the language used in the notice.

Contact Nardone Limited

     Dissolving and winding-up a dental partnership can be fraught with hazards. It is important to seek professional legal advice to assist in properly thinking through the process. The dental attorneys at Nardone Limited have vast experience guiding dentists through both amicable and hostile partnership dissolutions. If you are considering dissolving a dental practice partnership or would like more information regarding your dental practice partnership, contact Nardone Limited.