One of the most popular business entity for dentist’s in California is the professional corporation.
A California professional corporation has some attractive advantages over practicing as a sole proprietor or partnership. However, to enjoy these advantages, you must first incorporate as a professional corporation, and then follow annual corporate formalities.
What is a California Professional Corporation?
A California Professional Corporation is a special type of corporation only available to licensed service professionals, such as dentists, physicians, lawyers, accountants, and architects. In fact, this is the only way in which service professionals such as these can operate as a corporation in California.
The rules for forming and operating as a professional corporations in California are governed by the Moscone-Knox Professional Corporation Act. Generally, a California Dental Corporation (as a professional corporation) can only be formed under the following conditions:
- By one or more individuals who are all licensed dentists, physicians, surgeons, dental assistants, registered dental assistants, registered dental assistants in extended functions, registered dental hygienists, registered dental hygienists in extended functions, or registered dental hygienists
- The corporation must only engage in business related to the rendering of dental services
- The name of the corporation must include the name or last name of one or more of the past or present shareholders, and one of the following designations: “dental group,” “dental practice,” “dental office,” “Dental Corporation,” or an abbreviation of their title (DDS, DMD, etc.), along with the some the word Corporation (or an abbreviation of Corporation, such as Inc.). Some examples of acceptable dental corporation names are John Smith DDS, Inc or Smith Dental Corporation.
The legal advantages of incorporating center mostly around personal liability––limiting it as much as possible. However, there are significant cash flow and tax consideration which make incorporating even more beneficial. Furthermore, structuring your practice as a professional corporation will enable you to better raise capital and ensure that the entity will survive your death or the death of your partner(s).
Do You Need to Incorporate?
Whether or not you need to structure your practice as a California dental corporation will depend on a number of factors, namely:
- How many employees you will have
- Your risk tolerance
- Whether the business owns real estate
- Whether you need to separate personal assets from business assets
- Whether you have partners or other stakeholders
- Whether you are concerned about a partner possibly binding your personal assets without prior consent or knowledge
- Whether you can take advantage of the tax benefits extended to corporations
- Whether the business needs or plans to raise capital
- Whether you want the business to continue after your death or the death of a partner
What Can Incorporation Do For You?
Corporations were created for the purpose of protecting their owners, directors, officers, members, shareholders and managers from vicarious liability. By incorporating, members enjoy limited personal liability and protection from being personally liable for the debts and obligations of their employees or other members.
Employees and other members can do things over which you have no control. But, a claim for negligence or malpractice against an employee or another member will typically not attach to you personally if you operate as a corporation. Furthermore, a customer who slips and falls in your office will typically be limited to suing the corporation, not you.
With that said, members of professional corporations are not vicariously liable for the obligations of the corporation, however, each member is responsible for his or her own gross negligence or malpractice. So, if you are a member or shareholder and you personally do something grossly negligent, you will be held personally liable and the fact that you were operating as a member of a professional corporation may not protect you.
As for your cash flow, you may wish to incorporate and elect to be taxed as an S-Corporation to take advantage of the current tax laws. A discussion of the tax advantages afforded by operating as a professional corporation is beyond the scope of this article, but suffice it to say that a corporation can help you to save thousands of dollars in taxes annually.
So, whether you choose to structure your practice as a California dental corporation or not will depend a lot on your own personal risk tolerance (limiting your liability is always a good idea), and if you believe the tax advantages will benefit your cash flow.
Furthermore, you must take into consideration the fact that if you provide bad services or engage in bad business practices, your clients will not only have a claim against your corporation but also against you personally.
Contact a California Business Lawyer Experienced in setting up a California Professional Corporation
An experienced business law attorney, can evaluate your situation from a legal standpoint and advise you on the choice between incorporating or practicing as a sole proprietor or partnership. For more detailed information on setting up a California dental corporation, call Odgers Law Group today at 858-869-1114 or schedule an appointment online.