During dental school, your primary focus was likely on providing the best possible care for your patients. However, as a dental professional, it’s essential to recognize that running a successful dental practice also involves business management. One crucial consideration is forming your dental corporation, which can provide various benefits and legal protections in terms of tax savings and liability protection, primarily through establishing an S corporation. In this blog post, we’ll give you an overview of the steps involved in forming a dental corporation in California and the advantages it offers:
1. What is a Dental Corporation?
It is a legal entity that allows dentists to provide dental services while enjoying certain benefits and protections afforded to corporations. In a dental corporation, dentists can pool their resources, share ownership, and limit their liability for the practice’s debts and liabilities.
A dental corporation must comply with the regulations and requirements set forth by the state in which it operates. These requirements typically include obtaining the necessary licenses, adhering to specific ownership and management structures, and meeting certain professional standards.
2. Benefits of Forming a Dental Corporation:
- Personal Liability Protection: Incorporating your dental practice can help shield your personal assets from business liabilities, protecting you from substantial losses in case of contract disputes, employee lawsuits, or office lease disagreements.
- Improved Business Credit: A dental corporation may enhance your practice’s creditworthiness, potentially enabling you to secure loans without requiring personal guarantees, which can safeguard your financial standing.
- Taxation Benefits: Properly structuring your corporation can offer tax advantages. For instance, shareholders can minimize self-employment taxes, leading to significant cost savings for your dental practice.
- Access to Additional Benefits: Forming a dental corporation may open doors to various benefits, such as retirement plans and eligibility for specific government programs like Medicare.
While forming a dental corporation requires careful consideration of licensing, taxation, and bylaw requirements, the benefits can be substantial. It’s advisable to consult professionals specializing in dental and medical law, like Dental & Medical Counsel, who can guide you through the process and help you make informed decisions tailored to your needs.
3. Creating a Professional Dental Corporation in California:
It is crucial to consider certain factors when initiating a dental corporation in California to avoid the potential invalidation of the corporation during a lawsuit or audit. To ensure a smooth process and legal compliance, it is strongly advised to consult with a California Business Formation Attorney who specializes in dental corporations.
A professional corporation is typically restricted to providing professional services in a specific field. In order to practice, the corporation’s shareholders, directors, and officers must hold licenses in that particular profession. However, in the case of California dental corporations, there is some flexibility. Shareholders, officers, directors, or professional employees can be licensed in certain related professions and offer services within their own areas of expertise. Nevertheless, they must adhere to the following two conditions:
- Shareholders from these related professions cannot possess more than 49% of the total stock of the corporation.
- Non-dentist owners must not outnumber the licensed dentists within the corporation.
The following professionals are eligible to participate in a California dental corporation as long as they comply with the rules above:
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- Registered dental assistants
- Accredited dental assistants in extended functions
- Dental hygienists in extended functions
- Registered dental hygienists in alternative practice
- Licensed and certified physicians
- Licensed surgeons
Another thing you should pay attention to is the required documents for a dental corporation:
- Professional Articles of Incorporation
- Dental-specific Bylaws
- Organizational meeting minutes
- Dental Corp Share Certificates
- EIN Number (IRS Form SS4)
- Optional: S-Corp Election (IRS Form 2553)
- Register Corp with Dental Board
- Consulting a California Dental AttorneyWe’ll discuss them in the topic below.
4. Steps to form a Dental Corporation:
It takes approximately 2-3 weeks for the California Secretary of State to process a newly formed dental corporation. Here’s a general overview of the process:
1. Consider S-Corporation Status:
Evaluate whether electing S-Corporation status with the IRS is suitable for your dental practice. Consulting with professionals knowledgeable in this area can assist you in making an informed decision.
It is important to note that California dentists are not permitted to practice dentistry using a Limited Liability Company (LLC) according to California Corporations Code §17375. Determining whether a C or S corporation is more suitable is an important consideration. California professional dental corporations can be taxed in two ways. While C corporations file their own tax returns and pay separate income taxes, S corporations have pass-through taxation, which can lead to potential savings on payroll taxes.
2. Choose a Name:
Select a unique and distinguishable name for your dental corporation and make sure to comply with California’s naming requirements. According to Section 1804 of the California Business and Professions Code, a dental corporation must have a name that includes the full name or last name of the dentist, as it appears on their dental license, followed by one of the following: Dental Corporation, Incorporated, Corporation, Inc., or Corp. For example, an acceptable dental corporation name would be “Martin Austin DDS, Inc.”
If you wish to conduct business under a name other than the official dental corporation name, you must obtain a Fictitious Name Permit from the California Dental Board. The cost of getting the permit is either $650 or $325, depending on when the qualifying license is set to expire.
3. Designate a Registered Agent:
Designate a registered agent responsible for receiving legal documents and official correspondence on behalf of the dental corporation. The registered agent must have a physical address in California and be available from 9-5 daily. If you are not available during regular business hours, it can lead to a default judgment, wherein the plaintiff is automatically granted a victory in the event of a lawsuit. Another option is to hire a qualified company to serve as an agent on your behalf.
4. Obtain Employer Identification Number (EIN):
Apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This number is necessary for tax purposes and is used to identify your dental corporation. Obtaining a Tax ID Number (EIN): Apply for a Tax Identification Number, also known as an Employer Identification Number (EIN), from the IRS. This number is crucial for tax purposes and helps identify your dental corporation.
5. File Articles of Incorporation:
Draft the Articles of Incorporation, which are the legal documents that establish your dental corporation. The articles typically include details such as the corporation’s name, purpose, location, registered agent, shares of stock, and other pertinent information. You can obtain the necessary forms from the California Secretary of State’s website. The specific form is called “Articles of Incorporation of a General Stock Corporation” (Form ARTS-GS). The Articles should also be customized to include indemnification provisions.
6. Create Corporate Bylaws:
Prepare corporate bylaws that outline the internal rules and regulations governing your dental corporation. These bylaws cover shareholder rights, officer roles, decision-making processes, voting procedures, and other corporate governance matters. Bylaws are a crucial and formal component of the corporation’s records and must be made available for examination in the event of a lawsuit or audit. The absence of bylaws could potentially contribute to piercing the corporate veil in the event of a lawsuit.
7. Hold an Initial Board Meeting:
Convene an initial board meeting with the directors of the dental corporation to adopt the bylaws, elect officers, and handle any other important matters. Record the minutes of this meeting for future reference. Holding an Initial Corporate Meeting: Conduct an initial corporate meeting where you issue shares of your dental practice to relevant parties and elect officers for your business. This meeting also provides an opportunity to address other important matters related to the corporation.
8. File a Statement of Information:
You should submit the completed Articles of Incorporation and the required filing fee to the California Secretary of State. You can file the documents online or by mail. File an initial information statement with the relevant authorities, providing essential details about your dental corporation, such as entity number, address, officers, and directors. A Statement of Information must be filed within 90 days of incorporation. Failure to file will result in the assessment of a $250 penalty and corporation suspension.
9. Comply with Ongoing Requirements
Once your dental corporation is formed, ensure ongoing compliance with California corporate laws. This includes filing annual reports, maintaining proper records and documentation, and adhering to any other regulatory obligations.
While this overview provides a general outline, it’s essential to consult with a qualified attorney or business professional who specializes in California corporate law to guide you through the specific requirements and legalities involved in forming a dental corporation in the state.
If you need a professional to handle your dental corporation formation, you can schedule an appointment with our expert Fazel Mostashari here.