Just like every other business out there, one of the first decisions a new dental practice needs to make is how the business should be structured. If you are reevaluating your dental practice needs, it may also be a good time to reform the practice as a different type of business entity. Such a significant decision merits consideration as well as reconsideration. After all, the entity formation of your dental practice can have significant implications for how the practice is run, how it is taxed, and your personal liability exposure, among other important factors.
What Entity Formation Should You Choose for Your Dental Practice?
If you are looking to start a new dental practice or restructure an existing dental practice, we want to help you make sure you are choosing the right business structure to suit your needs and goals for the business. Let’s take a look at some of your entity formation options.
A Limited Liability Company (LLC) is a good place to start this discussion. It is no wonder why the LLC is one of the most popular business structures. The LLC structure is fairly simple and straightforward while also providing personal liability protection for business owners as well as some key tax advantages. Without needing to observe many of the formalities required of corporations, LLCs provide a separate, shielding entity for owners so that the owner’s personal assets are separate and, therefore, shielded, from the obligations of the business. This shield is not without limitations, of course, but is strong, nonetheless.
LLCs also offer attractive tax advantages. The business acts as a pass-through for taxes. Owners can report the profits and losses of the LLC on their personal tax returns. There is also tax flexibility offered by an LLC as owners may want the business to be taxed as a partnership or may want to opt for S-corporation taxation.
In the alternative, you may want to go the route of establishing your dental practice as a Professional Limited Liability Company (PLLC). While sharing some of the advantages of an LLC, a PLLC is usually reserved for licensed professionals. Opting for a PLLC over an LLC is a matter of personal preference as well as your taxation preferences for your practice.
A Professional Corporation (PC) may be another option for your dental practice. While asset protection in a PC is similar to that offered by an LLC or PLLC, a PC often is taxed similar to a corporation. As a tradeoff, however, there may be deductions available to a PC that cannot be claimed under other business structures. Furthermore, as an employee of a PC, the salary an owner pays themselves will be reported on a W-2.
You may also be able to form your dental practice as a Professional Association (PA). Under the PA structure, you can still be held liable for your professional actions and omissions, but the PA provides a shield against being held liable for the actions or omissions of the other associates in your practice. Additionally, the PA structure provides personal asset protection.
Dental Law Attorneys
Whether you are thinking about starting your own dental practice or restructuring your existing dental practice, the knowledgeable team of dental law attorneys at Mahan Dental Law are here to help. Contact us today.