Most dental practices are now operating as groups. This dramatically increases the complexity of managing your practice operations and ownership. In addition to determining how practice income, overhead expenses, and profit will be split, you also must determine how practice ownership will be transitioned. What will happen when an owner dies, becomes disabled, retires, or otherwise leaves the practice? And how should you fund the departing owner’s pay-out in the event of death?

A recent decision by the U.S. Supreme Court (Connelly v. U.S., No. 23-146, June 6, 2024) requires all group practices to review and potentially revise their buy-sell agreements. In Connelly, two brothers owned a corporation (Crown C Supply) and entered into a Stock Purchase Agreement (Shareholders Agreement). Their agreement required the company to acquire all the shares of the first brother to die if the remaining brother declined to purchase them. The company purchased $3.5 million of life insurance on each brother to fund the buy-sell arrangement. When one of the brothers died, the company used the proceeds to purchase his shares of stock for the $3,000,000 purchase price agreed on in the Shareholders Agreement.