February 7, 2024

Considering Selling Your Dental Practice? Essential Steps to Prepare for Sale

If you’re contemplating selling your dental practice, preparation is key to a successful and profitable sale. Enhancing the appeal of your practice to potential buyers involves several critical steps. In this guide, we’ll cover essential strategies to prepare your practice for the market.

Step 1: Tidying Up Your Corporation  

Begin by ensuring your corporation is in good shape to qualify for the lifetime capital gains exemption—a significant tax-saving opportunity. The lifetime capital gains exemption (LCGE) in Canada is a tax relief opportunity for individuals who are selling shares of a qualified small business corporation (QSBC), and it can result in significant tax savings for dentists selling their dental practices.

To be eligible, your corporation must meet certain criteria:

  • The 90% Active Business Rule: At the time of sale, 90% of the business assets must be used in an active business conducted in Canada.
  • The 50% Active Business Test: Over 24 months before the sale, more than 50% of the assets must have been used actively in a Canadian business.
  • The Small Business Corporation Requirement: The corporation must be a Canadian-Controlled Private Corporation (CCPC) throughout the 24-month period before the sale.
  • To be eligible for the LCGE, the shares must have been owned by the individual or a related person or partnership throughout the 24 months immediately preceding the sale.

Preparing your corporation in alignment with these requirements can lead to substantial savings, potentially around $225,000 per shareholder if your gain is close to the lifetime exemption limit. This preparation includes cleansing non-qualifying assets such as passive investments, significant cash or certain real estate.

Step 2: Minimizing Employee Liability

Mitigate potential termination liabilities by updating employment contracts to include enforceable clauses that limit termination costs to the minimum standards under the Employment Standards Act of Ontario. Recent legal changes have heightened buyer scrutiny over such contracts, making it vital to consult with an employment or business lawyer to ensure they are robust and enforceable. Courts have consistently highlighted the need for clarity and fairness in termination clauses. When selling your dental practice, these contracts can be a major point of negotiation and potential liability.

To prepare for the scrutiny of potential buyers and minimize your liability we recommend you work with an Employment lawyer and consider the following measures:

  • Review and Update Contracts: Ensure that all employment agreements are current and comply with the latest legal standards. Given the dynamic nature of employment law, what was enforceable a few years ago may now be void.
  • Enforceability of Termination Clauses: Termination clauses must be crafted with precision. They must not only set out the conditions for termination and any severance entitlements but also align with or exceed the minimum statutory requirements. Any ambiguity or attempt to contract out of minimum statutory rights can render the clause, and potentially the entire agreement, unenforceable.

Step 3: Financial Documentation

Prospective buyers will require comprehensive financial records. Prepare the last three years’ financial statements, including balance sheets and profit and loss statements. Engage with your accountant early on to ensure accuracy and completeness of these documents.

Step 4: Corporate Tax Compliance

Ensure your corporate taxes are paid in full. Gather the last three years’ Notices of Assessment or Reassessment from the Canada Revenue Agency (CRA) to present to the buyer’s legal team.

Step 5: Compliance with Health and Safety Regulations

Maintain updated floor plans for X-ray facilities and ensure you have satisfactory Health Administration Radiation Protection (HARP) reports for the last three years. When selling a dental practice, it’s critical to demonstrate that the practice is compliant with all health and safety regulations, especially concerning X-ray facilities, due to the strict guidelines governing the use of radiation for diagnostic purposes.

Step 6: Lease Agreement Considerations

If you lease your practice space, review your lease agreement for a demolition clause or relocation clause which can deter bank financing for the buyer. Also, verify your right to assign the lease and consider negotiating a term extension with your landlord to meet buyers’ and banks’ preferences for a 10–12-year lease. A bad lease has the potential to prevent the sale of your practice altogether.

Step 7: Professional Appraisal

Obtain a practice valuation from a reputable appraiser with dental industry expertise. A professional assessment can provide an objective value of your practice, supporting a fair asking price.


Involve your accountant and business lawyer in your plans to sell your dental practice at least two years in advance. This foresight allows for the necessary “tidying up” of legal and financial matters, ensuring you maximize your returns from the sale.

This checklist is not exhaustive, and you should work closely with your legal and financial advisors to navigate the complexities of the sale process. By following these steps, you can position your practice for a smooth and profitable transition.

Remember, preparation is paramount—start now to streamline your sale later.


Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.