How to Convert Your Dental Practice from a Sole Proprietorship to an S-Corp

Perhaps when you began your dental practice, you chose to structure it as a sole proprietorship because it is the most straightforward business structure. As your practice grew and you became more profitable, though, you may have found that a sole proprietorship does not offer the protection you need and might be considering converting your practice to an S-Corp. Converting to an S-Corp has many benefits. Below, our dental practice legal entity formation attorney explains what these are.

Why Convert Your Dental Practice to an S-Corp?

Converting your dental practice from a sole proprietorship to an S-Corp provides you with many legal protections and can also optimize your financial situation. You can reap many benefits as an S-Corp, including the following:

Tax advantages: Sole proprietors are taxed on the entire income their practice generates. Converting to an S-Corp classifies you as an employee of the corporation. You will pay yourself a salary and have standard payroll taxes deducted. Any profits remaining are distributed as dividends and are not subject to the same type of taxation.
Liability protection: In a sole proprietorship, you and your business are the same entity. This means that if a patient wants to file a lawsuit against you, it is your personal assets that are at risk. Only the assets of the business are at risk when you convert to an S-Corp, offering much more legal protection.
Increased credibility: Converting to an S-Corp signals to your employees, patients, and suppliers that you are a formal business that has set itself up for long-term success.

How to Convert a Sole Proprietorship to an S-Corp

There are a few simple steps to convert your sole proprietorship to an S-Corp. These include:

Select a business name: You must choose a business name for your S-Corp that is not too similar to any other registered businesses and that complies with state regulations.
Incorporate: To legally form a corporation you must file the Articles of Incorporation with the Secretary of State’s office. You must also draft bylaws outlining rules for board meetings, operational guidelines, and shareholder rights.
Obtain an EIN: Even if you are not going to hire any employees you must obtain an Employment Identification Number (EIN) from the IRS. This is similar to your business’ Social Security number.
File the appropriate form: To formally convert to an S-Corp structure, you must file IRS Form 2553. You must do this within approximately two months of the start of the tax year.
Update contracts: You will likely need new business contracts when converting your business, including employment agreements, leases, and patient agreements.
Establish governance: Once you have converted to an S-Corp, you will need to hold initial board meetings, adopt bylaws, issue stock certificates, and address other important matters.

Our Dental Practice Legal Entity Formation Attorney Can Help

There are many legal issues to address when converting your business structure. At AGS Law, our dental practice legal entity formation attorney can guide you through the process, ensure you are in legal compliance, and make the transition as easy as possible for you. Call us now at 801-477-6144 or contact us online to schedule a consultation and to learn more about how we can help.

Source:

irs.gov/forms-pubs/about-form-2553