A dental practice is, after all, a business. As such, there are critical business decisions that will need to be made, many of which will need to be made at the practice’s formation. From inception, there will be choices you will need to make that will have powerful implications for how the business is run, your personal liability, and taxes, among other things. Selecting what business entity you should select for your dental practice, for instance, is an important decision that will need to be made at the business’s inception.
What Business Entity Works for Your Dental Practice?
Business entity selection is an early stage business decision that will have a variety of impacts on your business far into the future. The legal entity you choose for your business will be the legal standing it holds from the viewpoint of the state. Each legal business entity has its own unique formation requirements as well as differing implications regarding personal liability of the business’s owners and tax consequences.
Before you select what business entity works best for your dental practice, you should reflect on the needs of your practice as well as your preference regarding liability and taxation. Some business entities offer liability protection which will provide you with shielding should your practice ever be sued or have significant debt obligations which lead to collection actions. Furthermore, some business entities may be more specifically designed to fit your formation needs. After all, some business entities were made for the situation where there are two or more people who want to hold equal shares of the business where others were not.
Many dentists looking to form their own practice consider establishing a sole proprietorship. A sole proprietorship essentially means that the business and its owner are one and the same for legal purposes. A sole proprietorship is more commonly used for dental associates who are working as independent contractors as opposed to dentists looking to establish a private practice. This is because if the dentist is sued for medical malpractice, they can be held personally liable for any resulting judgment. A sole proprietorship places the owner’s personal credit at risk. They will be subject to double the payroll taxes as they are considered to be both an employee and an employer. Additionally, they will end up paying out more for Social Security taxes as well as Medicare taxes.
Some looking to open up a dental practice may want to consider establishing a professional corporation, which is a corporation formed by a group of licensed professionals. The separation offered by a professional corporation is often appealing as it helps untangling what can be a mess of interwoven personal income versus income and profits of the business itself. A corporation does, however, require significant paperwork as well as the holding of formal meetings annually.
A professional limited liability company is also an attractive option as it also offers personal liability protection. The tax burden of a professional limited liability company may be higher than with some of the other business entities. The paperwork, however, may not be as intensive as that required of a corporation.