Tracker Equity: A Scalable Alternative to Sub-DSOs

Sponsored Content: Holland & Knight

By Jacob Bolton and Sam Jacobs, Associates, Holland & Knight

As DSOs expand, the challenge of measuring and managing business performance becomes more complex. Traditionally, many organizations have relied on subsidiary DSOs (Sub-DSOs)—separate legal entities tied to the success of an individual or small group of practices—to offer equity opportunities to up-and-coming dentists. But a newer model is gaining traction: tracker equity.

Tracker equity offers a streamlined, scalable alternative that preserves economic alignment while reducing legal complexity. Before diving into its advantages, it’s worth understanding why Sub-DSOs became popular—and why they’re increasingly being reconsidered.

Why Sub-DSOs Became the Go-To Model

Sub-DSOs have been used to create economic alignment between providers and the performance of their locations, while complying with state laws that restrict non-dentist ownership of clinical entities. In this structure, providers hold equity in the Sub-DSO that delivers non-clinical services to the affiliated practice.

This arrangement allows providers to benefit financially from the success of their location through distributions or liquidity events tied to the Sub-DSO’s performance. It also fosters entrepreneurial engagement, giving clinicians a stake in the business side of their practice while maintaining regulatory boundaries required under applicable law.

For DSOs focused on provider engagement and retention, Sub-DSOs have offered a tangible ownership experience, but they come at a cost.

The Administrative Burden of Sub-DSOs

While effective, Sub-DSOs introduce significant complexity, especially as a DSO scales. Each one typically requires:

New Legal Entity Formation. Each Sub-DSO must be formed, registered, and maintained.
Tax Filings. Separate entities mean separate tax returns, often across multiple states.
Governing Documents. Each entity needs its own operating agreement, ledger, and governance structure.
Service Agreements. A business services agreement (BSA) and other documents must be drafted between the Sub-DSO and the clinical entity, tailored to local laws, and agreements between the Sub-DSOs and DSOs are common to pass certain services and resources through to Sub-DSOs.
Compliance Monitoring. Each must be reviewed for fee-splitting, CPOD laws, and licensure rules.

Multiplied across dozens—or hundreds—of locations, this administrative load becomes a serious drag on growth and can often require the addition of one or more FTEs to manage and track.

Tracker Equity: A Smarter Alternative

Tracker equity solves many of these problems. Instead of forming a new entity for each location, the DSO can issue equity, or classes of equity, in the parent entity that is economically linked to the success of the services provided to a specific location or region. Growth-minded DSOs are embracing this model for several reasons:

No Entity Proliferation. Avoids creating new entities for each practice, keeping the structure lean and reducing compliance risks.
Reduced Administrative Burden. Centralizes oversight and eliminates duplicate tax filings, registrations, and operating agreements.
Aligned Incentives Without Diluting Control. Tracker equity is typically non-voting and non-governing, allowing DSOs to preserve centralized decision-making with respect to the non-clinical operations of DSOs.
Enhanced Liquidity Planning. Can be structured to participate in distributions, recapitalizations, or sale events—giving providers meaningful upside without the burdens of Sub-DSO ownership.

Final Thoughts

Tracker equity offers DSOs a scalable, compliant, and investor-friendly way to align business outcomes. It preserves control, simplifies operations, and creates meaningful upside for providers—without the complexity and burden of additional entities.

For organizations seeking a smarter way to share equity while continuing to grow, tracker equity deserves serious consideration.

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