Do You Have to Keep the Same Structure When Buying a Dental Practice?

There are many things to consider when buying a dental practice. One of these is the business structure you choose. Contrary to what many people think, you do not need to use the same business structure the practice is currently using. However, choosing the type of business structure for your practice is of critical importance. This will dictate how you operate your practice, as well as the tax and legal implications you may face. Below, our dental transitions attorney explains further.

Sole Proprietorships 

The simplest and easiest type of business structure is a sole proprietorship. The only requirement for sole proprietorships is that you operate the business in some manner. As the name implies, sole proprietorships are managed by just one owner. Sole proprietorships are generally not recommended for dental practices. While easy to set up, they do not offer any legal protection against debt or liability, such as if someone sues you for malpractice. We typically do not recommend that a dental practice operates as a sole proprietorship and will often discourage this structure type.

Partnerships 

Partnerships are a business structure in which two or more individuals or entities have a role in the business. Generally speaking, partnerships can be a good option for dental practices in the United States. Partners can divide expenses among themselves while also sharing in the profits. The more dentists there are, the more patients they can also treat. When a partner wants to retire, there is also a fairly established path for them to do so and another dentist can take over their role relatively easily.

Choosing a partnership for a dental practice does also have some downsides. For example, if one partner is sued for malpractice, all partners may face legal liability. Conflict may also arise if one or more of the partners disagree about how to run the practice. Partnerships can be structured in various ways so it is important to speak with a dental transition attorney to determine how to best structure your partnership.

Limited Liability Company (LLCs) or Professional Limited Liability Company 

Limited liability companies (LLCs) and Professional Limited Liability Companies (PLLCs), are one of the most attractive business structures for dental practices. Some states require that an LLC for a dental practice is structured as a PLLC, so it’s important to hire a dental transition attorney who is familiar with the correct structure for your state. LLCs are separate legal entities from the owners so personal assets are protected from liabilities, including lawsuits. Compared to corporations, LLCs are also easier to establish and profits and losses pass directly to the owners’ personal tax returns, which allows them to avoid corporate tax rates. We form most dental practices as PLLCs or LLCs (depending on the state), and provide the option for the entity to be taxed as an S Corporation, giving the owner the convenience of forming an LLC with certain tax benefits provided to an S Corporation by the IRS.

Corporations 

Corporations, particularly S-corporations, are another good option for dental practices. Owners are shielded from liabilities and profits can be paid out as dividends, providing better control over taxation. Many states also require dental practices to operate as a professional corporation (PC) or professional limited liability company (PLLC). Corporations do typically have requirements that are more formal than LLCs or sole proprietorships, such as maintaining meeting minutes.

Our Dental Transitions Attorney Can Help You Choose 

If you are acquiring a dental practice and are wondering what business structure is right for you, our dental transitions lawyer can help. At AGS Law, our experienced attorney can further explain the different types of structures and help you throughout the entire acquisition process. Call us now at 801-477-6144 or contact us online to schedule a consultation and to learn more about how we can help with your case.

Source:

irs.gov/pub/irs-news/fs-08-22.pdf