Pulley vs. Carta and the Two-Entity DSO Ownership Problem

Corporate practice of dentistry rules in many states require the clinical practice to be owned by a licensed dentist, which prevents outside investors from owning it directly. The management company works around this by owning everything else: the brand, the equipment, the staff, and the management services agreement that generates most of the group's actual profit.

An associate offered equity in the practice entity alone is receiving ownership in the smaller, more restricted piece of that structure. Whether that is a meaningful offer depends entirely on what the practice entity is actually worth relative to the management company, which most associates have no way to evaluate without seeing both.

This is not a workaround unique to any one group. It is how the industry is structured almost everywhere corporate practice restrictions exist, which is precisely why an associate needs to ask specific questions about value rather than assuming an equity offer means what it would at a business without this split.

An honest equity offer to an associate should say plainly which entity the shares sit in, roughly how the practice entity's value relates to the group's overall economics, and what the management services agreement between the two entities actually costs the practice each year.

An associate who is only shown the practice entity's cap table, with no visibility into the management company's economics, cannot meaningfully evaluate the offer, and a group that structures things this way deliberately should expect that to come up eventually, likely at the worst possible time.

Pulley works well for representing a single practice entity's cap table cleanly, including associate ownership and any options. It does not, by itself, model the relationship between a practice entity and a separate management company, so that connection needs to be documented and understood outside the platform.

For a DSO with just one or two practice locations and a simple management structure, this is often enough.

What matters more than the platform at this stage is making sure the management services agreement between the two entities is written down clearly, since that document, not the cap table, is what actually defines how value flows between the practice and the management company.

Carta's multi-entity capabilities become genuinely useful once a DSO is running many practice entities under one management company, since it can represent the ownership structure of each practice alongside the parent, giving investors and lenders a fuller picture than a single cap table would.

This matters most at scale, where a group with a dozen or more locations needs a consolidated view for financing, compensation benchmarking across associates, or eventual sale to a larger platform.

A group approaching that scale should plan the migration before it becomes urgent, since untangling years of practice-entity records built up separately is a bigger project than setting up the structure correctly from an earlier point.

Confirm which entity the offered shares actually sit in, and whether your state's corporate practice rules require that structure. Confirm the associate has enough information about the management company's economics to understand what the practice entity stake is actually worth.

Confirm the vesting terms and what happens to the associate's stake if they leave to practice elsewhere, since that scenario is common in dentistry and needs to be addressed in writing before it happens, not negotiated afterward.

Confirm, too, whether the offer includes any path to management company equity later, tied to tenure or performance, or whether the practice entity stake is the full extent of what is on the table. An associate who understands the ceiling up front makes a more informed decision than one who assumes the first grant is a step toward something larger that was never actually promised.

Work through these points before extending an offer:

• Confirm which entity the offered shares sit in, and whether your state's corporate practice rules require that structure.
• Make sure the associate has enough information about the management company's economics to understand what the practice entity stake is worth.
• Disclose what the management services agreement between the two entities costs the practice each year.
• Confirm the vesting terms and what happens to the shares if the associate leaves.
• Document the link between the practice entity and the management company outside the cap table platform.