The Pros and Cons to Practice Partnership

If you’re considering a partnership, you’ll want to evaluate the pros and cons to determine whether a partnership is right for your dental practice.  Some partnerships work very well while others can leave you feeling burned.

Partnerships are complex, made even more complex if the partners know each other personally (outside of the business, i.e. friends).

What’s the Difference Between a Partnership and Joint Venture?

A partnership is when two or more people operate a business (dental practice in this instance) by sharing responsibility, profits and losses.  For instance, if you owned your own practice but were looking to bring in some partners to your 

A joint venture is what happens when two corporations partner up to operate a business.  This is one of the most common methods in dentistry.  An example of a joint venture would be when two already established dental practices combine forces to become one super dental practice.

3 Types of Partnerships

There are ultimately three types of partnerships:

1.     General

2.     Limited

3.     Limited Liability

There is technically a fourth type of partnership, Limited Liability Limited Partnership, but it is not recognized in all states.

General Partnership

A general partnership is very easy to create as it requires no state filings.  This also means reduced costs as you’re not having to pay a filing fee, ongoing state fees or even a franchise tax.  It is important to note that you will still need to obtain business licenses and permits for operation.  Under a general partnership, you also don’t need to hold annual meetings, issue partner interest and more.

Limited Partnership

Under a limited partnership at least one partner has unlimited liability (the general partners) while the other partners (limited partners) have limited liability.  Limited liability means that your personal assets cannot be used to satisfy any outstanding debts.  While general partners oversee day-to-day operations, a limited partner is more of a silent investor.

Limited Liability Partnership

Limited Liability partnerships can only be created by certain professional service businesses such as accountants, attorneys, dentists, doctors, and a handful of others.  The limited liability partnership offers personal asset protection, meaning your personal assets cannot be used to satisfy any debts or liabilities.  It is important to note that this does not shield any partners from liability of their personal actions (i.e. malpractice).

Analyzing the Pros and Cons of Partnership

As with everything, there are pros and cons with the forming of a partnership.  Before committing yourself and your dental practice partnership, you should be cognizant of the pros and cons so you can make an informed decision.

The Pros of Partnership

·        Flow-through income taxation

·        Sharing of responsibility and financial commitments

·        Financial backing

·        Delegate managerial responsibilities

The Cons of Partnership

·        Legal liability

·        Trust can be broken

·        Profit distribution can cause conflict

·        A partner may withdraw their interest or pass away

Bottom Line

There are both advantages and disadvantages of forming a partnership.  Take the time to really think over your partnership and do your homework.  Once you’ve committed to the partnership, if things take a turn for the worse things can end up worse than a divorce.  When done correctly, there are some great advantages.

Dental B-School has a wealth of information and resources available to you on our website. Have a look through our free resource section for more information or get in touch with us to schedule your strategy session.