This article presents key factors a dentist should consider before forming a corporation, whether as a sole shareholder or with multiple shareholders. These considerations are categorized as:
Be aware that California law does not permit limited liability companies to perform professional services (California Corporations Code §17375). “Limited liability partnerships” are essentially general partnerships that elect to be treated as LLPs by registering with the Secretary of State. Only accountants, architects and attorneys are allowed to operate their practices as LLPs (Corporations Code §16101).
To avoid making changes to contracts and other documents, it is best for a dentist to decide before owning a practice whether to incorporate.
The other business entity a dentist can form is a general partnership or group practice. For information on forming and operating a general partnership or group practice, refer to the CDA Legal Reference Guide for California Dentists.
It is important for a dentist to get expert information prior to deciding on an appropriate business entity. Speak with both an attorney and an accountant before deciding if establishing a dental corporation is right for you.
The purpose of the corporation is to engage in the profession of 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. This corporation is a professional corporation within the meaning of California Corporations Code section 13400 et seq.
The articles also must include the name of the corporation, business address, name of agent for service and number of shares the corporation is authorized to issue.
Refer to the pertinent sections of the Corporations Code, Business & Professions Code and California Code of Regulations for more information on the laws.
Once a dentist decides to incorporate, it is important for the dentist to undertake all actions under the corporate name and to maintain the separate identity of the corporation. In order for a professional corporation to shield a dentist from personal liability, the dentist must maintain the professional corporation as a complete separate entity. If a plaintiff can demonstrate that the professional corporation was not maintained as a separate entity distinct from the dentist personally, then a court may allow piercing of the corporate veil, also known as “alter ego liability,” whereby the dentist would be personally liable for the liabilities and debts of the corporation. The corporate veil can be pierced, for example, if personal funds and assets are not held separately from the corporation funds and assets, if the dentist personally hires its employees, for failure to keep corporate records and have required meetings, for paying personal debts with corporate funds and vice versa, to name just a few.
Occasionally, a dental corporation will be asked by a lender or government agency to provide a Certificate of Good Standing. The Secretary of State’s office can provide a Certificate of Status upon completion of a Business Entities Records Order Form available online.
If converting from a sole proprietorship to a dental corporation, a dentist will have to obtain a new tax ID number, a new Type 2 NPI number and change business registration with local and state agencies that require registration, for example, the Department of Public Health for X-ray machine registration, Employment Development Department for payroll taxes and Board of Equalization for sales and use taxes.
Before a dental practice owner initiates the process of contracting with a dental plan, the following items should be in place:
Any change to the business name or business type typically requires a change to the tax ID number and to the NPI. Both numbers, once assigned to a business, are permanent and cannot be reused.
Plans have different contract policies and procedures. It is important that a practice reach out to any currently contracted plans prior to making a change to their business structure to find out if they will be required to sign a contract.
If the plan does require recontracting, find out if it is just involves paperwork or if it will result in different fee reimbursement and/or if they require contracting into additional networks. In some cases, this could result in a major reduction in fee reimbursement from a plan.
Neither business is set up or operates as a professional corporation. Western Dental is registered and licensed with the Department of Management Health Care as a dental plan. Pacific Dental Services is registered as a corporation whose purpose is “to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession.”