Starting a Medical/Dental Practice

Posted by Drew Larson on Monday, March 9, 2015

Whether you are a recent graduate or an experienced physician or dentist, opening a new practice can be daunting.  To get started you will need to find financing, hire staff, lease or buy space, line up vendors, set up a computer and records system, register with payers, obtain insurance, and ensure compliance with privacy and other laws. 

In addition, you will want to create a new legal entity for your practice.  The most common choices are professional corporations (PCs) or a professional limited liability companies (PLCs).  All owners of the practice must be licensed to practice the relevant profession for the practice (i.e. licensed dentists must own a dental practice).  Both types of entity will provide protection from personal liability for the acts of your partners, but not generally from your own professional negligence or those under your direct supervision.

Taxes are the primary factor when deciding which type of entity to form.  Because of a number of tax disadvantages for C-Corporation in these situations, most practices choose to be a PC taxed as a S-Corporation or a PLC taxed as a partnership.  S-Corporations enjoy some benefits when it comes to payroll and self-employment taxes, but require distributions/dividends to be paid pro-rata to the shareholders based on ownership.  PLCs may subject a larger portion of the owners’ income to self-employment taxes, but also offer owners a tremendous amount of flexibility for structuring management and allocating profits and losses.  Which is a better fit for your particular practice will depend on your particular goals. 

Lastly, if you are forming your new practice with partners, a well drafted buy-sell agreement is an essential investment.  A buy-sell agreement will generally include provisions that allow the business or other partners to buy out someone who wants out of the business (or to retire), dies, gets divorced, becomes disabled, or is terminated (in certain circumstances).  The buy-sell agreement will also frequently provides a method for setting the price for a purchase and payment terms so that the practice can make payments over time.  Discussing these matters up front and having an objective method of determining value can reduce or even eliminate some of the most heated arguments between partners. 

Bottom line, there is no one choice that is best for all new medical practices.  However, once some key choices are made regarding taxes your new legal entity can be formed in relatively short order.

If you would like to discuss which entity type would be best for your new practice, don’t hesitate to contact a BrownWinick attorney.