Whether you own your own dental practice or provide services alongside one or more dental professionals, you may have considered not only if you should create a corporation, but also if the corporate structure is a good fit for your business.
While forming a corporation undoubtedly presents a myriad of benefits to your business, as a licensed professional, your dental corporation must also ensure it adheres to special rules and regulations. In this article, we discuss a few of the many salient reasons you should choose to incorporate your dental practice, as well as some of the standards and requirements dentists must meet when forming their corporate entity.
Several characteristics of the corporate form are what influence business owners to incorporate. Legally speaking, corporations are considered “persons,” which, through operation of law, are granted their own rights and responsibilities. For example, a corporation enjoys perpetual existence, but must submit annual filings with the Secretary of State in which it is incorporated. Given the formalities with which each entity must comply, corporations are thus bestowed with a range of benefits and protections including the following:
Of utmost importance is the limited liability afforded by the corporate structure. Shielding your assets from creditors and potential lawsuits is paramount for protecting your personal practice and your livelihood. In the event a lawsuit is brought against you –even if that lawsuit is unrelated to your provision of dental services –should that claimant succeeds in obtaining a judgment against you, you run the risk of jeopardizing all of your assets to satisfy that judgment, including those belonging to your business. However, when your business is formed as a corporation, you need not fear that your practice assets could be liquidated as a result of a judgment.
Additionally, if you conduct business with another dentist under a partnership structure, you could expose yourself to liabilities resulting from from the acts of your dental partner. Thus, you can effectively minimize any associated risk of liability by incorporating your practice.
Since in almost every state no two entities may register or operate under the same trade name, incorporating your business serves to prevent any other dentists from practicing with your name. Therefore, using a corporation indirectly aids in the marketing and branding of your dental business by helping patients identify and recognize your practice. Moreover, it goes without saying that the “Inc.” and “Corp.” designations add an air of credibility to a business, as evidenced by consumers and vendors alike who tend to prefer conducting business with registered entities.
If keeping your credit score clean is a priority for you, then a corporation is the answer to maintaining your personal credit. This is because corporations, as separate “persons” are able to open up their own lines of credit. For example, if you have a mortgage, it almost certainly far easier to obtain a line of credit as a separate corporation than under your individual capacity. Corporate business credit may also serve to help you avoid having to provide a personal guaranty when conducting transactions. In addition, it should be noted that any interest payments made towards business credit cards are likely tax deductible.
One drawback of conducting business as corporation is the effect of “double taxation.” Double taxation occurs because both corporate profits and the dividends it issues to its shareholders are subject to taxation. Thus, both the corporation and the individual –who may very well be the same person –are responsible for their respective taxes.
Notwithstanding the possibility of double taxation, a dentist may elect to treat his dental corporation as a Subchapter S Corporation (“S Corp”) for tax purposes. As such, the dentist can benefit from the “pass through” taxation distinctive of the S Corp election and effectively avoid any duplicative tax payments.
Furthermore, typical business expenses, ranging from rent and salaries to professional membership association dues or fees, may be deducted as business expenses prior to allocating income to the owners. Ultimately, however, it is still important to consult with a tax professional to assess the tax implications associated with your particuar dental practice.
Should you decide to eventually retire and sell your practice, an added bonus to structuring your business as a corporation is the ease of future transfers. As a sole proprietor, your personal assets are intertwined with that of your business, making it much more difficult to determine its value and complicating the transfer process. An even more significant feature is that this essentially makes corporations far more attractive to potential purchasers. Having a separate corporation, therefore, can save you time and stress upon deciding to sell your dental business.
It should be noted that the list of benefits described above is by no means exhaustive. Moreover, if you decide to use the corporate form for conducting your dental practice, it is imperative to understand some of the additional requirements with which dentists, as licensed professionals, are compelled to comply.
When a corporation is formed for the purpose of providing dental services, that corporation must be organized as a “professional corporation.” Professional corporations are identified by the suffix “P.C.” appearing after the corporation name. Such PC’s are subject to the rules and regulations set forth by general corporate law and the Moscone-Knox Professional Corporation Act of 1968, which provide restrictions on ownership and other obligations. See, for example:
Upon registering as a PC, the PC must specifically indicate in its articles of incorporation that it is designated as a professional corporation which intends to provide professional services –in your case dental services. In addition, the dental corporation name is required to feature the last name of at least one of the corporation’s stockholders. Despite this requirement, dental corporations may also register for a fictitious business name in the county in which the practice is located to provide dental services under a DBA (or “doing business as”).
In general, PC owners are limited to those individuals who possess the same professional licenses. As a result, every director, shareholder, and officer of a PC must possess an active license to practice dentistry. However, in California, PC owners may also include those practicing similar professions, such as registered dental assistants and hygienists, licensed surgeons and physicians, to name a few, provided, however, that those similar professionals neither own more than 49% of the total stock, nor outnumber the total number of dentists.
Although it is evident that choosing to provide dental services as corporation can provide a wealth of benefits and protections for your business, consulting with an attorney or other professional is key to being able to fully comprehend your given circumstances and ultimately make the best decision for your dental practice.
You and your practice deserve an attorney who is accessible to you when you have questions or concerns, as well as work efficiently to meet important deadlines. Call or fill out our form to learn more about how we can support you and your practice.
