Professional Dental Corporation
Dental
Incorporation for Dentists
$599.00 - Plus Filing Fees
Background:
A
professional corporation is a statutory creation, created and regulated by
state laws for a licensed professionals such as dentists, physicians and
attorneys.
The main
reasons for professionals (such as dentists) to for tax liability purposes and
to avoid personally liability for the malpractice of other owners.
What sets the
corporate entity apart from all other types of business entities, and what
makes it special for legal, practical and tax purposes, is that the corporation
is a legal entity separate from any of the people who own, control, manage or
operate it. In fact, a corporation is legal entity capable of entering into
contracts, incurring debts, etc. It is this separateness, between the
entity and the people that own the entity, from which many of the advantages of
the corporate entity flow.
Incorporation
also allows you to step back from many of the lawsuits and claims made against
your business. Normally, except for the malpractice participated in by a
professional, the liabilities of the business are those of the separate
corporate entity, not of the real people behind the corporation. With limited
exception, these business claims can only reach as far as the business assets
of the corporation, not the personal assets of the people who own and operate
the corporation.
Why Become a
Professional Corporation?:
* Limited
liability for business claims and for malpractice claims against other
professionals in the practice (though professionals do not have limited
liability for their own malpractice.)
- For example, if someone slips on the floor of an incorporated professionals
office, limited liability rules would apply and the professionals personal
assets should be protected.
As a sole
proprietorship, the dentist remains personally liable for the
obligations
of the dental practice. For example, if a judgment were obtained against the
dental practice, unlike an incorporated dental office, the individual owner
(dentist) would be responsible for the judgment against the office.
Also, as a
sole proprietorship, the individual owner dentist is liable for the
negligent acts of its employees under the theory of respondeat superior.
* Fringe
benefits - By incorporating, you are considered an employee of your
corporation. This gives you distinct advantages. The corporation, can, in most
instances, provide you with fringe benefits and usually deduct their cost from
the corporation's income as a business expense. These may include as an
example:
- Retirement Plans
- Life and Disability Insurance
- Health Insurance
* Establish
order and more respectability in your business.
* Tax
flexibility - some control over how much individual income (salary) each
professional will earn and report on federal and state tax returns; profits
kept in the practice may be taxed at a lower corporate rate. In other
words, incorporating you business may allow you to have some power in splitting
business income between two tax entities, the corporation and yourself, as an
employee-shareholder, in order to obtain the most favorable (smallest) tax rate
on the income.
- If you choose "S" corporate tax status, the corporation's
profits and losses are usaully passed through to its shareholders. This means,
with exceptions, that profits and losses are not taxed to, or deducted by, the
corporation, but by the individual shareholders in proportion to their stock
holdings. The corporation side-steps taxation on its profits and its
shareholders, get the tax benefit of the losses, credits, deductions, etc. of
the corporation. Consequently, "S" corporation tax status can be a
very flexible planning tool, providing corporations with the ability to live in
two different worlds, enjoying a corporate legal life and
"partnership-like" tax status.
*We strongly
urge that you consult with your accountant or tax professional with
regards your particular needs and the indications, advantages
and disadvantages of "C" vs. "S" corporate status
election.
Moscone-Knox
Professional Corporation Act (General Information):
A
'professional corporation' in California is governed under the
Professional Corporations Act, Corps.C. § 13400,
et seq....also known as the... "Moscone-Knox Professional Corporation
Act" which was passed in 1968.
The Moscone-Knox Professional Corporation Act permits certain licensed,
professional activities to be conducted in the corporate form that at one time
were not so permitted--including the practice of dentistry, law, medicine,
and accountancy.
A
professional corporation may render its professional services only through
individuals who are duly licensed in the particular profession involved
(Corps.C. §
13405(a)); and, the corporation itself is subject to regulation by
the state agency charged with licensing such professional activity (Corps.C. §
13410(a).
For
example, dental corporations may render dental services
only through persons who are licensed to practice dentistry in
California.
Rules of Corporate
Law Applicable:
Subject to
the exceptions noted below, professional corporations are subject to the same rules
of corporate law as any other corporation. [Corps.C. §§ 102(a), 13404]
Formation Requirements:
A professional corporation is formed in the same way as any other corporation,
but subject to the following special requirements:
Articles of incoporation must
contain special purpose clause: A special purpose clause is prescribed for use
by professional
corporations, and must be set forth in its articles of
incorporation:
'The purpose
of the corporation is to engage in the profession of (i.e. dentistry),
and any other lawful activities (other than the banking or trust
company business) not prohibited to a corporation engaging in such profession by applicable laws and
regulations.' [Corps.C. § 202(b)(1)(ii)]
Special
statement required in articles:
The articles
must contain a specific statement that the corporation is a professional corporation within the
meaning of Part 4 of the Corporations Code.
(Typically, 'This corporation is a professional corporation within the
meaning of Section 13400 et seq. of the Corporations
Code of the State
of California. ') [Corps.C. §§ 202(b)(4), 13404]
What to Name
your Dental Corporation?:
Under Corps. C. § 13409,
The Dental Board of CA has the power to regulate the name of the which the
corporation may adopt.
Due to California fictitious
business name restrictions as set forth in the CA Dental Practice Act, you must
use the last name(s) of one or more of the owners in the corporate name.
I.e. I therefore highly recommend that you use the full name of the professionally
licensed dentist, followed by "Inc." or followed by Professional
Corporation.
Example of Name Formats To
Use:
John
Smith
Smith
John Smith
& Jane Doe
Smith and Doe
Followed by
one of the following:
Dental
Corporation
Dental Corp.
Professional
Dental Corporation
Professional
Dental Corp.
Prof. Dental
Corp.
Or:
Jane Smith, (D.D.S. or other
academic degree)
Smith (D.D.S.
or other academic degree)
Followed by one of the
following:
Corporation
Corp.
Incorporated
Inc.
Professional
Dental Corporation
Professional
Dental Corp.
Prof. Dental
Corp.
Professional
Corporation
Professional
Corp.
Prof. Corp.
Some of the
applicable statutory authorities are as follows:
Generally,
California Business & Professions Code §§1600-1808; 16 Cal. Code of
Requlations §§1000-1089.4, §§1055-1060:
California
Business & Professions Code § 1804, et seq.
1804.
Notwithstanding subdivision (i) of section 1680 and subdivision (g) of section
1701, the name of a dental corporation and any name or names under which it may
be rendering professional services shall contain and be restricted to the name
of the last name of one or more of the present, prospective, or former
shareholders and shall include the words "dental corporation" or
wording or abbreviations denoting corporate existence, unless otherwise
authorized by a valid permit issued pursuant to section 1701.5.
California
Business & Professions Code § 1701.5
Any association or partnership
or corporation or group of three or more dentists, engaging in practice under
any name that would otherwise be in violation of section 1701 may practice
under this name if, and only if, the association, partnership, corporation or
group holds an outstanding, unexpired, unsuspended, and un-revoked permit
issued by the board under this section.
The state
regulatory agencies also generally require that the name of a professional
corporation denote its corporate status; i.e., that it contain
the words 'a professional corporation' or 'law corporation' or 'medical corporation,' etc. [Corps.C. § 13409(a)]
Requirements
re: licensed director, shareholders and officer:
1805.
Except as provided in Sections 13401.5 and 13403 of the
Corporations Code, each director, shareholder, and
officer of a
dental corporation shall be a licensed person as
defined in the
Moscone-Knox Professional Corporation Act.
For one and two-shareholder corporations: If a professional
corporation has only a single shareholder (a
licensed professional), it need have only one director--who must be such shareholder,
and who must also serve as the corporation's president and treasurer.
(But the other officers of the corporation
need not be licensed professionals.)
[Corps.C. § 13403
Where a professional
corporation has only two shareholders (licensed
professionals), it need have only two directors--who must be such shareholders and, between them, must serve as its president, vice-president,
secretary and treasurer. [Corps. C. § 13403]
13403. The provisions of the General Corporation Law shall apply to
professional corporations, except where such provisions
are in
conflict with or inconsistent with the provisions of
this part. A
professional corporation which has only one shareholder
need have
only one director who shall be such shareholder and who
shall also
serve as the president and treasurer of the
corporation. The other
officers of the corporation in such situation need not
be licensed
persons. A professional corporation which has
only two shareholders
need have only two directors who shall be such
shareholders. The two
shareholders between them shall fill the offices of
president, vice
president, secretary and treasurer.
A professional medical corporation may
establish in its articles
or bylaws the manner in which its directors are
selected and removed,
their powers, duties, and compensation. Each term
of office may not
exceed three years. Notwithstanding the
foregoing, the articles or
bylaws of a professional medical corporation with more
than 200
shareholders may provide that directors who are
officers of the
corporation or who are responsible for the management
of all medical
services at one or more medical centers may have terms
of office, as
directors, of up to six years; however, no more than 50
percent of
the members of the board, plus one additional member of
the board,
may have six-year terms of office.
