TO LLC OR NOT TO LLC: THAT, IS THE QUESTION!

nat rosasco • January 9, 2013

Limited Liability Companies, or “LLC” as they are more commonly known, have been the “entity du jour” over the past decade, and I’ve been asked by many a client what the real reasons are to choose an LLC over, for example, an S-Corporation, a Partnership or a traditional C-Corporation.  Choosing the most appropriate structure for […] The post TO LLC OR NOT TO LLC: THAT, IS THE QUESTION! appeared first on GGHH Law.

Limited Liability Companies, or “LLC” as they are more commonly known, have been the “entity du jour” over the past decade, and I’ve been asked by many a client what the real reasons are to choose an LLC over, for example, an S-Corporation, a Partnership or a traditional C-Corporation.  Choosing the most appropriate structure for your business can be confusing even for the most learned legal practitioner, and I find that most attorneys know which entity they should recommend but don’t necessarily know why.  In this article we’ll explore the differences between two of the most popular business structures, the LLC and the Subchapter S Corporation, or “S-Corp”.

The LLC and S-Corp are popular business structures for a variety of reasons, some of which the two have in common.  Both the LLC and the S-Corp are creatures of statute, meaning they are separate legal entities created by a state filing and subject to state-mandated formalities, such as filing annual reports and paying periodic filing fees.  Both entities are taxed like sole proprietorships (in the case of a single owner or shareholder) and partnerships (in the case of multiple owners or shareholders), meaning the company itself doesn’t pay federal taxes, but rather all company profits and losses are “passed through” to the individual owners, who report these tax attributes on their individual federal tax returns.  These two business structures also share another key feature in that they have the ability to separate the liabilities of the business from the personal assets of the owners, thereby shielding those assets from business obligations.  Despite the similarities, LLCs and S-Corps do differ in several ways, including their operational flexibility, administrative requirements, profit-sharing and employment tax implications, all of which we will explore in this article.

WHAT IS AN LLC ANYWAY?

According to the Internal Revenue Service, an LLC is an entity “designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership”.  Although many times you will hear practitioners refer to an LLC as a “limited liability corporation”, you should note that an LLC is not actually a corporation.  While both corporations and LLCs are created as a matter of state law, they are separate entities with entirely different governing rules and regulations.  Nevertheless, the LLC is a flexible form of business enterprise that combines elements of both the corporate and partnership structures.  As a pass-through entity, all profits and losses generated in an LLC are reported by the individual owners, or “members” as they are called, on their individual federal tax returns.  What differentiates the LLC from a partnership, however, is the limit of the liability for which a member is responsible, which in most cases will be limited to such member’s investment in the company.

HOW ABOUT AN S-CORP?

Like a C corporation, an S-Corp is a corporation organized pursuant to the laws of the state in which it is formed.  As in the case of an LLC, however, S-Corps resemble partnerships in the manner in which they are taxed, meaning all aspects of income, deductions and tax credits flow through to the shareholders, regardless of whether cash distributions or contributions are made.  S-Corps must make an affirmative election under Subchapter S of Chapter 1 of the Internal Revenue Code to be taxed as a partnership and the following requirements must be met in order to do so:

–        The entity making the election must be a domestic corporation;

–        The entity making the election may only have one class of stock;

–        The entity making the election may not have more than 100 shareholders;

–        Shareholders of the entity making the election must, subject to certain limited exceptions, be U.S. citizens and natural persons; and

–        Profits and losses allocated to the entity’s shareholders must be in proportion to each  shareholder’s interest in the business.

SO WHICH ONE IS RIGHT FOR MY BUSINESS?

As indicated above, LLCs and S-Corps differ in several ways, including but not necessarily limited to their operational flexibility, administrative requirements, profit-sharing and employment tax implications.  Understanding the differences will dictate which of these two popular entities are right for your business.

One of the primary differences between an LLC and an S-Corp is the amount of administrative formality that is required to maintain an S-Corp.  Remember, an S-Corp is in fact a corporation and therefore requires compliance with certain administrative formalities such as formation of a board of directors, annual reporting and other mandatory business filings, adopting by-laws, issuing stock, annual shareholder and director meetings with mandatory record keeping and other administrative requirements that a typical small business may not be prepared to deal with, particularly one with a single owner.  An LLC on the other hand requires far fewer forms for registration and generally lower start-up costs.  Limited Liability Company’s are not generally required to have formal meetings nor maintain minutes of meetings, though record keeping is still highly recommended.  With fewer administrative formalities to maintain, LLCs may be more difficult to penetrate by those seeking to challenge its shield of liability protection.  Generally, as long as the members of the LLC do not “co-mingle” funds, imposing liability beyond the LLC itself may be very difficult.

Another distinguishing feature between the LLC and the S-Corp is the operational and management flexibility inherent in an LLC versus the rigid structure of an S-Corp.  Most matters relating to governance of an LLC can be handled in one document, typically termed an “Operating Agreement” or “Limited Liability Company Agreement”, which is the governing document of the company.  Most state codes in fact allow members of an LLC to essentially override the LLC statute by otherwise agreeing in the operating agreement how the LLC will be governed.  The owners of an LLC can decide to be self-managed (or, “member-managed” as it is otherwise known) or manager-managed.  When member-managed, the LLC is run in the same manner as a partnership where the partners handle the day-to-day operations of the company.  When manager-managed, the LLC is run similar to a corporation, where the members may elect one or more people to handle the day-to-day decisions of the company.  S-Corps on the other hand, have directors and officers, where the board of directors makes major decisions and officers are elected to manage the company’s daily business.  Of course, an LLC also has the flexibility to “elect” officers if they so choose, but many business owners appreciate the simplicity of their businesses being managed by a manager they have the authority to appoint or remove in their sole discretion.

When organizing a new company involving more than one owner, particular attention should be paid to the allocation of the company’s profits and losses as well as the distribution of available capital.  S-Corporations, which are restricted to one class of stock, must allocate profits and losses pro-rata to its shareholders based on their relative share of ownership.  Thus, a shareholder who owns 25% of the company’s stock reports a distribution of 25% of the company’s year-end taxable profit or loss, as the case may be, on the shareholder’s individual federal tax return.  The one class of stock restriction governing S-Corps does not apply to LLCs, thereby allowing flexibility in planning distributions and allocations of profits and losses.  A business organized as an LLC may allocate profits and losses disproportionately among its members, taking into account factors such as sweat equity, preferred returns for members contributing more capital and other arrangements forming the basis for so-called “special allocations”.  The IRS may scrutinize such special allocations to ensure members are not attempting to evade taxation by allocating larger losses to members in higher income tax brackets, thus it is important to structure the allocations so that they have what the IRS terms “substantial economic effect”.  Consider the case of four members who form an LLC where three members put up an equal amount of cash while the fourth member signs a note to contribute his or her share in installments over the first five years of the business.  The operating agreement may provide that the first three members receive a larger distributive share of profits and losses for those five years during which the fourth member’s note is outstanding, even though all four members may each have an equal 25% ownership interest in the company.  The IRS should respect this arrangement given there is a legitimate financial basis for the special allocation (i.e., it has “substantial economic effect”).  It should be noted that an LLC’s structural flexibility would allow an operating agreement governing the foregoing company to provide for other restrictions, such as a limit on the fourth member’s ability to vote on certain issues affecting the company until the note is paid in full.  It is this structural flexibility that motivates many  entrepreneurs to choose the LLC for their new businesses.

While not generally a significant consideration for most new small business owners, it is important to note that owners of LLCs are considered to be self-employed and must therefore pay the 15.3% self-employment tax contributions towards Medicare and Social Security (note that the rate was effectively reduced in 2012 to 13.3% but is slated to return to 15.3% in 2013).  Thus, all the income of an LLC is subject to self-employment tax whereas a corporation may retain some of that income after payment of the owner’s salary and treat it as unearned income not subject to self-employment.  Of course, nothing is free in the eyes of the IRS as any such unearned income will be taxed at some point when it is distributed to the company’s shareholders as taxable dividend income.

While LLCs have been the entity of choice in recent years, the flexibility associated with its ownership and management structure in multi-member businesses comes with a price.  That price is reflected in what can be complex operating agreements reflecting the practical realities of an agreement among the owners.  In such situations it is important to remember that an operating agreement is not an “off-the-shelf” document that a practitioner or formation service can quickly plug names into and deliver without a thorough understanding of the member’s relative expectations.  LLC operating agreements may need to combine complex provisions usually found in shareholder agreements, separate buy-sell agreements, partnership agreements and even employment agreements.  Such provisions may affect issues such as capital contributions to the business, allocation and distribution of profits and losses as described above, members’ voting rights, admitting new members or removing existing ones, restrictions on transfer of membership interests and many others.  Each member should retain their own counsel experienced in business organizations to advise them of their relative rights and obligations before entering into any such agreement.

Jordan Uditsky is a partner in the corporate practice of Garelli, Grogan, Hesse & Hauert.  He brings a diverse legal and business background to the firm, with a particular emphasis on the representation of startups and emerging companies, commercial real estate transactions, tax and estate planning.  He advises businesses in a broad range of general corporate and corporate transactional matters, including business organizations and choice of entity issues, financing and private equity, mergers, acquisitions and joint ventures as well as business restructurings.  Mr. Uditsky also employs his experience as a business owner to advise companies on regulatory issues and compliance matters, employment policies and legal issues related to their general operations and business strategy.

Garelli Grogan Hesse & Hauert offers sophisticated yet cost effective, practical solutions to our clients’ legal challenges.  We strive to understand not only the legal issue but our clients’ business goals as well and craft tailored solutions to help them succeed.  Our attorneys represent businesses and individuals throughout the Midwest in matters that include commercial litigation, securities, business counseling and transactions, commercial real estate, estate planning and family law.  For more information contact Jordan Uditsky at (630)833-5533 x12 or juditsky@gghhlaw.com.

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Insurer’s Proposed Acquisition of Dental Practices Raises Serious Conflict of Interest and Patient Care Concerns

By Jordan Uditsky • November 19, 2025
Whatever shortcomings and deficiencies there may be in the dynamic between dental practices and insurance companies, their distinct roles in patient care are not among them. While dentists certainly want to maximize reimbursements for the services they provide, they are not beholden to insurers and remain in a position to advocate for their patients and challenge an insurer’s cost-related decisions without fear of retribution. But a recent unprecedented move by Delta Dental in Wisconsin threatens to upend this relationship model and has raised serious concerns among industry groups, patient advocates, and regulators about conflicts of interest, competition, and provider independence. Over the summer, Delta Dental announced that it had acquired Cherry Tree Dental, which owns and operates 31 clinics, 25 of which are in Wisconsin. The American Dental Association (ADA) is among several organizations that have vocally opposed the transaction. As the ADA wrote shortly after the deal was announced: When an insurance company becomes both health care provider and insurance payer, questions arise regarding potential conflict of interest. From a business standpoint, dental insurance companies seek to minimize cost and maximize profit. As a result, patients may find their treatment options limited to what is most cost-effective for the insurer, not necessarily what is most effective for their oral health. The ADA believes that the health interests of patients are best protected when dental practices and other private facilities for the delivery of dental care are owned and controlled by a dentist licensed in the jurisdiction where the practice is located. In November, the ADA filed a letter with the Wisconsin Office of the Commissioner of Insurance expanding on its concerns and opposition, including worries about provider independence in making care decisions: Direct ownership by Delta Dental could compromise dentists’ ability to advocate for patients. In traditional arrangements, dentists can appeal plan decisions regarding patient care or choose to leave a network if plan policies are overly restrictive. However, the ADA warned that when dentists are employed by the payer, challenging cost-related decisions could label them as “problem employees,” potentially discouraging proper patient care. The potentially anti-competitive effects of such arrangements were also raised by the ADA, which noted that “Delta Dental’s acquisition could influence agreements, business practices, and fee schedules between Cherry Tree and other payers, potentially creating unfair competition.” In addition to the ADA, the acquisition has drawn concerns from the Wisconsin Dental Association, the American Economic Liberties Project, and the Alliance of Independent Dentists. The fallout of this acquisition, if consummated, could ripple through other markets, potentially leading to a seismic shift in the provider-insurer landscape. We will continue to monitor developments and provide updates as warranted. We Focus on You So You Can Focus on Your Patients At Grogan Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you. Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation. Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices. This blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals. 

Movin’ On Up: Understanding Dental Associate Buy-In Structures

By Jordan Uditsky • November 5, 2025
For many associate dentists, the sound of opportunity knocking comes in the form of an offer to become a co-owner of the practice where they work. Rare is the dentist who would reject out of hand the chance to reap the rewards of years of hard work and move from employee to owner. For the practice owner who opens the equity door for their associate, such a “buy-in” can infuse cash and value into the business, laying the foundation for a seamless ownership transition upon their retirement. The key to a successful buy-in is a clear and equitably structured deal that is workable for both parties in terms of how the associate will pay for their equity interest. However, there is no one-size-fits-all approach. The structure of a dental associate buy-in can vary significantly depending on factors such as the associate’s financial capacity, the practice’s value, and the owner’s long-term objectives. Whether you are the associate or the practice owner in such an anticipated transaction, you should consult with an experienced dental practice attorney to understand your options and determine which structure provides you with the most value. Your discussions with your attorney will likely include some or all of these common dental associate buy-in arrangements: Cash Purchase A cash purchase is the most straightforward buy-in model. With either cash on hand or through financing (the more likely scenario), the associate purchases an agreed-upon percentage of the practice (for example, 25% or 50%) for a lump sum based on the appraised value of the practice. That appraisal will likely use metrics such as collections, earnings before interest and taxes (EBIT), or a percentage of annual gross revenue. The main advantage of a cash purchase is its simplicity and immediacy. The associate becomes an owner right away, while the practice owner receives a clean and full payout for the equity sold. However, obtaining the needed financing may be easier said than done for an associate dentist, and a large cash payout may also come with unwanted tax ramifications for the owner. Buy-in documents for a cash purchase should address governance rights, profit distribution, and exit mechanisms. They should also define what happens if an associate departs, how future buyouts are valued, and whether non-compete or non-solicitation covenants apply. Installment Sale An installment sale allows the associate to purchase equity over time, making periodic payments instead of an upfront lump-sum payment. After the practice value is determined, the associate agrees to buy a certain percentage of ownership through regular payments (e.g., monthly or quarterly) over several years. Payments may include interest, and ownership may be transferred incrementally or upon full payment. This is a good option for associates who do not have the means for a full cash buy-in immediately. For owners, this arrangement provides a steady income stream – so long as the associate does not leave before completing payments. That is why the documentation should clearly outline the timing of ownership right transfers and provide robust default remedies, such as forfeiture of prior payments or reversion of ownership interests. Sweat Equity In a sweat equity buy-in, the associate essentially cashes in their years of service, earning ownership over time based on their contribution to the practice’s growth or profitability rather than through an immediate cash investment. In a typical sweat equity arrangement, the associate receives equity credits or options tied to measurable performance benchmarks, such as production levels, collections, or tenure. Once those targets are met, a portion of ownership is granted or sold at a reduced price. This structure enables talented but liquidity-challenged associates to become owners without initial financial strain. It also incentivizes them to grow the practice and stay long-term. Shadow Account (a/k/a Phantom Equity) As I discussed in detail in this post , a shadow account (also known as a phantom equity plan) is an increasingly popular buy-in model, especially when the owner is not yet ready to transfer real equity but wants to reward the associate as if they were an owner. In this model, the associate receives the right to cash payments equal to the value of the shares at a specified later date or distribution event. That value can be established through an appraisal or an agreed-upon formula. The selected events that give an associate a right to a payout can include such things as achieving performance goals, termination, or retirement. There are two types of shadow account/phantom stock plans. In an "appreciation only” plan, the cash payout upon vesting does not include the value of the underlying shares, only the increase in value of that stock since it was granted. In a “full value” plan, the practice pays both the underlying value of the stock and the amount the stock has appreciated while held by the associate. Like actual stock, phantom stock has a defined value and tracks the practice’s performance, but an associate holding phantom stock typically does not have either minority shareholder rights or voting rights in the practice. This makes phantom stock plans attractive for owners who want to provide associates with a sense of equity ownership without giving up any actual control. The practice has broad discretion and flexibility in designing the plan, including valuation formulas and vesting conditions, and the administrative burdens are less than for traditional stock option plans. As noted, the “best” buy-in structure depends on the unique goals of both parties. No matter which model is ultimately adopted, well-crafted documentation, preceded by careful consideration and consultation with counsel, is essential. That is because these deals do more than just transfer ownership - they can lay the foundation for a stable, profitable partnership that preserves the practice’s legacy and rewards everyone’s investment, financial or otherwise. We Focus on You So You Can Focus on Your Patients At Grogan Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you. Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation. Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices. This blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.

FTC Drives Final Nails Into the Coffin of a Nationwide Non-Compete Ban

By Jordan Uditsky • October 15, 2025
For years, state courts and legislatures have taken a skeptical eye toward non-competition agreements. Judges here in Illinois and elsewhere routinely struck down overly broad and overreaching provisions, while an increasing number of jurisdictions have passed legislation or ordinances banning non-competes outright or limiting their scope and enforceability. During the Biden administration, the federal government injected itself into the heretofore state and local assault on non-competes. Both the Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB) took the position, in a Final Rule and counsel's opinion, respectively, that almost all existing and future non-competes were void and unenforceable. Those actions were immediately challenged in court, and litigation about the FTC's ban resulted in dueling district court rulings, with injunctions issued against its enforcement in some cases, while other judges found the FTC had properly issued the Final Rule. The FTC subsequently appealed federal court rulings in Texas and Florida that invalidated or enjoined, respectively, the FTC's non-compete ban. Then came Election Day 2024. Nationwide Ban Abandoned, but Challenges to Non-Competes Remain Unsurprisingly, for an administration with a penchant for being business-friendly and regulation-averse, the newly comprised FTC quickly changed its tune on a nationwide non-compete ban. A series of moves this year has made it clear that the federal government, at least for the next three years, is abandoning any such blanket efforts. Specifically, the FTC moved in September to dismiss its appeals of two district court decisions that had struck down the Final Rule. Simultaneously, the commission took steps towards acceding to the vacatur of the non-compete ban . At the same time, however, the FTC has also indicated, through recent enforcement actions and warning letters , that it will continue to pursue remedies against employers on a case-by-case basis for the unlawful use of post-employment non-competes under Section 5 of the FTC Act, which prohibits "unfair methods of competition." Those FTC efforts, which are nothing new, mean the battle over the validity of non-compete agreements will continue to be fought largely at the state and local levels. Once again, dental practice owners and other employers will need to tailor their non-competition agreements to comply with the patchwork of jurisprudence, laws, and regulations of the states and localities where they have employees while remaining mindful of anti-competitive overreach that could attract the FTC's attention. With the nationwide non-compete ban dead and buried, but restrictions on and litigation about the enforceability of such agreements very much alive, now is an opportune time for practice owners to consult with experienced employment counsel who can review and revise any existing or contemplated non-competition provision as necessary. If you have questions about your company’s non-competes or would like assistance reviewing or drafting such agreements, please call Grogan Hesse & Uditsky at (630) 833-5533 or contact us online to arrange for your free initial consultation. We focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you. Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices, and this blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.
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Insurer’s Proposed Acquisition of Dental Practices Raises Serious Conflict of Interest and Patient Care Concerns

By Jordan Uditsky • November 19, 2025
Whatever shortcomings and deficiencies there may be in the dynamic between dental practices and insurance companies, their distinct roles in patient care are not among them. While dentists certainly want to maximize reimbursements for the services they provide, they are not beholden to insurers and remain in a position to advocate for their patients and challenge an insurer’s cost-related decisions without fear of retribution. But a recent unprecedented move by Delta Dental in Wisconsin threatens to upend this relationship model and has raised serious concerns among industry groups, patient advocates, and regulators about conflicts of interest, competition, and provider independence. Over the summer, Delta Dental announced that it had acquired Cherry Tree Dental, which owns and operates 31 clinics, 25 of which are in Wisconsin. The American Dental Association (ADA) is among several organizations that have vocally opposed the transaction. As the ADA wrote shortly after the deal was announced: When an insurance company becomes both health care provider and insurance payer, questions arise regarding potential conflict of interest. From a business standpoint, dental insurance companies seek to minimize cost and maximize profit. As a result, patients may find their treatment options limited to what is most cost-effective for the insurer, not necessarily what is most effective for their oral health. The ADA believes that the health interests of patients are best protected when dental practices and other private facilities for the delivery of dental care are owned and controlled by a dentist licensed in the jurisdiction where the practice is located. In November, the ADA filed a letter with the Wisconsin Office of the Commissioner of Insurance expanding on its concerns and opposition, including worries about provider independence in making care decisions: Direct ownership by Delta Dental could compromise dentists’ ability to advocate for patients. In traditional arrangements, dentists can appeal plan decisions regarding patient care or choose to leave a network if plan policies are overly restrictive. However, the ADA warned that when dentists are employed by the payer, challenging cost-related decisions could label them as “problem employees,” potentially discouraging proper patient care. The potentially anti-competitive effects of such arrangements were also raised by the ADA, which noted that “Delta Dental’s acquisition could influence agreements, business practices, and fee schedules between Cherry Tree and other payers, potentially creating unfair competition.” In addition to the ADA, the acquisition has drawn concerns from the Wisconsin Dental Association, the American Economic Liberties Project, and the Alliance of Independent Dentists. The fallout of this acquisition, if consummated, could ripple through other markets, potentially leading to a seismic shift in the provider-insurer landscape. We will continue to monitor developments and provide updates as warranted. We Focus on You So You Can Focus on Your Patients At Grogan Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you. Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation. Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices. This blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals. 

Movin’ On Up: Understanding Dental Associate Buy-In Structures

By Jordan Uditsky • November 5, 2025
For many associate dentists, the sound of opportunity knocking comes in the form of an offer to become a co-owner of the practice where they work. Rare is the dentist who would reject out of hand the chance to reap the rewards of years of hard work and move from employee to owner. For the practice owner who opens the equity door for their associate, such a “buy-in” can infuse cash and value into the business, laying the foundation for a seamless ownership transition upon their retirement. The key to a successful buy-in is a clear and equitably structured deal that is workable for both parties in terms of how the associate will pay for their equity interest. However, there is no one-size-fits-all approach. The structure of a dental associate buy-in can vary significantly depending on factors such as the associate’s financial capacity, the practice’s value, and the owner’s long-term objectives. Whether you are the associate or the practice owner in such an anticipated transaction, you should consult with an experienced dental practice attorney to understand your options and determine which structure provides you with the most value. Your discussions with your attorney will likely include some or all of these common dental associate buy-in arrangements: Cash Purchase A cash purchase is the most straightforward buy-in model. With either cash on hand or through financing (the more likely scenario), the associate purchases an agreed-upon percentage of the practice (for example, 25% or 50%) for a lump sum based on the appraised value of the practice. That appraisal will likely use metrics such as collections, earnings before interest and taxes (EBIT), or a percentage of annual gross revenue. The main advantage of a cash purchase is its simplicity and immediacy. The associate becomes an owner right away, while the practice owner receives a clean and full payout for the equity sold. However, obtaining the needed financing may be easier said than done for an associate dentist, and a large cash payout may also come with unwanted tax ramifications for the owner. Buy-in documents for a cash purchase should address governance rights, profit distribution, and exit mechanisms. They should also define what happens if an associate departs, how future buyouts are valued, and whether non-compete or non-solicitation covenants apply. Installment Sale An installment sale allows the associate to purchase equity over time, making periodic payments instead of an upfront lump-sum payment. After the practice value is determined, the associate agrees to buy a certain percentage of ownership through regular payments (e.g., monthly or quarterly) over several years. Payments may include interest, and ownership may be transferred incrementally or upon full payment. This is a good option for associates who do not have the means for a full cash buy-in immediately. For owners, this arrangement provides a steady income stream – so long as the associate does not leave before completing payments. That is why the documentation should clearly outline the timing of ownership right transfers and provide robust default remedies, such as forfeiture of prior payments or reversion of ownership interests. Sweat Equity In a sweat equity buy-in, the associate essentially cashes in their years of service, earning ownership over time based on their contribution to the practice’s growth or profitability rather than through an immediate cash investment. In a typical sweat equity arrangement, the associate receives equity credits or options tied to measurable performance benchmarks, such as production levels, collections, or tenure. Once those targets are met, a portion of ownership is granted or sold at a reduced price. This structure enables talented but liquidity-challenged associates to become owners without initial financial strain. It also incentivizes them to grow the practice and stay long-term. Shadow Account (a/k/a Phantom Equity) As I discussed in detail in this post , a shadow account (also known as a phantom equity plan) is an increasingly popular buy-in model, especially when the owner is not yet ready to transfer real equity but wants to reward the associate as if they were an owner. In this model, the associate receives the right to cash payments equal to the value of the shares at a specified later date or distribution event. That value can be established through an appraisal or an agreed-upon formula. The selected events that give an associate a right to a payout can include such things as achieving performance goals, termination, or retirement. There are two types of shadow account/phantom stock plans. In an "appreciation only” plan, the cash payout upon vesting does not include the value of the underlying shares, only the increase in value of that stock since it was granted. In a “full value” plan, the practice pays both the underlying value of the stock and the amount the stock has appreciated while held by the associate. Like actual stock, phantom stock has a defined value and tracks the practice’s performance, but an associate holding phantom stock typically does not have either minority shareholder rights or voting rights in the practice. This makes phantom stock plans attractive for owners who want to provide associates with a sense of equity ownership without giving up any actual control. The practice has broad discretion and flexibility in designing the plan, including valuation formulas and vesting conditions, and the administrative burdens are less than for traditional stock option plans. As noted, the “best” buy-in structure depends on the unique goals of both parties. No matter which model is ultimately adopted, well-crafted documentation, preceded by careful consideration and consultation with counsel, is essential. That is because these deals do more than just transfer ownership - they can lay the foundation for a stable, profitable partnership that preserves the practice’s legacy and rewards everyone’s investment, financial or otherwise. We Focus on You So You Can Focus on Your Patients At Grogan Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you. Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation. Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices. This blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.

FTC Drives Final Nails Into the Coffin of a Nationwide Non-Compete Ban

By Jordan Uditsky • October 15, 2025
For years, state courts and legislatures have taken a skeptical eye toward non-competition agreements. Judges here in Illinois and elsewhere routinely struck down overly broad and overreaching provisions, while an increasing number of jurisdictions have passed legislation or ordinances banning non-competes outright or limiting their scope and enforceability. During the Biden administration, the federal government injected itself into the heretofore state and local assault on non-competes. Both the Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB) took the position, in a Final Rule and counsel's opinion, respectively, that almost all existing and future non-competes were void and unenforceable. Those actions were immediately challenged in court, and litigation about the FTC's ban resulted in dueling district court rulings, with injunctions issued against its enforcement in some cases, while other judges found the FTC had properly issued the Final Rule. The FTC subsequently appealed federal court rulings in Texas and Florida that invalidated or enjoined, respectively, the FTC's non-compete ban. Then came Election Day 2024. Nationwide Ban Abandoned, but Challenges to Non-Competes Remain Unsurprisingly, for an administration with a penchant for being business-friendly and regulation-averse, the newly comprised FTC quickly changed its tune on a nationwide non-compete ban. A series of moves this year has made it clear that the federal government, at least for the next three years, is abandoning any such blanket efforts. Specifically, the FTC moved in September to dismiss its appeals of two district court decisions that had struck down the Final Rule. Simultaneously, the commission took steps towards acceding to the vacatur of the non-compete ban . At the same time, however, the FTC has also indicated, through recent enforcement actions and warning letters , that it will continue to pursue remedies against employers on a case-by-case basis for the unlawful use of post-employment non-competes under Section 5 of the FTC Act, which prohibits "unfair methods of competition." Those FTC efforts, which are nothing new, mean the battle over the validity of non-compete agreements will continue to be fought largely at the state and local levels. Once again, dental practice owners and other employers will need to tailor their non-competition agreements to comply with the patchwork of jurisprudence, laws, and regulations of the states and localities where they have employees while remaining mindful of anti-competitive overreach that could attract the FTC's attention. With the nationwide non-compete ban dead and buried, but restrictions on and litigation about the enforceability of such agreements very much alive, now is an opportune time for practice owners to consult with experienced employment counsel who can review and revise any existing or contemplated non-competition provision as necessary. If you have questions about your company’s non-competes or would like assistance reviewing or drafting such agreements, please call Grogan Hesse & Uditsky at (630) 833-5533 or contact us online to arrange for your free initial consultation. We focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you. Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices, and this blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.
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