Lawyer for Dentists, Dental
Corporations and Group Dental Practices
By Matt Dickstein
Should you Incorporate your
Thank you for finding my suite of articles on
the basic corporate, business and contract law issues for
dental corporations and group dental practices in
California. The articles in this suite are:
In this article I answer the question,
should you incorporate your dental practice?
What are the costs and benefits of forming a dental
corporation? It’s a
tough question. The
answer depends on a balancing of different factors. Most of
us suffer information overload not long after starting this
analysis. All of the
factors start swimming around in our minds and we don’t know
what to think.
This article gives you a quick roadmap.
The first factor is whether you want limited liability,
which is the primary benefit of forming a dental
corporation. Next you determine the costs of forming and
maintaining a dental corporation.
Then you delve into the tax advantages and
disadvantages of forming a corporation. Last, you weigh the
factors and make a decision.
Benefit – Limited Liability
Limited liability is the primary benefit
of incorporating your dental practice. A solo dentist is
personally liable for all general debts and liabilities of
the practice, including vendor contracts and real property
and equipment leases. On the other hand, a shareholder of a
corporation is not personally liable for the corporation’s
debts (except payroll taxes, workers compensation premiums
and related obligations imposed by the government). There
is one big exception, however: the dentist is always liable
for his or her own professional negligence and the
negligence of employees under the dentist’s supervision.
Only insurance can mitigate such liability.
Partners Need a
Practices with more than one dentist should use a dental
corporation. The dental corporation not only shields each
dentist from general liabilities of the dental corporation
(discussed above), but also shields each dentist from
liabilities arising from the acts of other dentists in the
group. Although two
or more dentists can work together as a partnership, this is
not your best choice. Partnerships are risky because each
dentist is liable for the acts of each other dentist.
Incorporation mitigates this risk by protecting against
liability from other dentists in the group.
You want the benefits of limited
liability. But it costs money – corporations pay franchise
taxes and require legal and accounting costs for their
organization and maintenance. Worse yet, because dentists
are subject to special regulation, you need specialized
legal advice. A
dentist probably will incur more legal fees than the
run-of-the-mill service corporation.
I charge $2,000 in legal fees to form a dental corporation.
You need at least another $1,000 or so to cover filing fees,
accounting costs and misc. costs of changing your form of
business. In year two you’ll start paying franchise taxes –
annual franchise taxes are $800 + 1.5% of net profit.
Disclaimer: Consult your accountant about all tax
matters. I do not give tax advice. If your accountant
disagrees with my opinions below, listen to your accountant,
In my experience, tax analysis causes a
lot of confusion. The various and sundry tax advantages and
disadvantages of forming a dental corporation all depend on
your circumstances, which change from year to year, not to
mention the endless changes in tax law. Worse, sometimes
you find that after weighing the tax advantages and
disadvantages, they all seem to cancel one another out,
leaving you with no clear-cut decision.
To sum it up quickly, there are few
remaining tax benefits for incorporating a dental practice.
Moreover, the few remaining tax benefits work only for “C”
corporations (not for “S” corporations). In brief, forming
a professional C corporation helps a little with fringe
benefits (most notably health insurance) and life insurance,
but not much else. On the other hand, incorporation means
you must pay the annual franchise tax (explained above).
If after all this analysis you decide to
incorporate your dental practice, go to my next article,
compliance checklist for a dental corporation.
This article only gives a short roadmap of
the issues involved in deciding whether or not to
incorporate your dental practice. There is a lot more to
this topic than introduced here. Please get competent legal
and tax counsel before you form a dental corporation.
Call me to schedule a
legal consultation: 510-796-9144