If you’re a dentist practicing in California, consider forming a professional dental corporation to gain legal advantages and protect your assets. However, navigating the process of incorporating a professional corporation can be complex and requires strict compliance with state and federal statutes. This article will outline the essential steps to help you build a solid foundation for forming a professional dental corporation in California, providing valuable legal advice.
Understanding the Professional Dental Corporation
A professional dental corporation is a legal entity created under California state law for dental professionals to practice their profession. The Moscone-Knox Professional Corporation Act governs it, the general provisions of the California Corporations Code and regulations set forth by the Dental Board of California. By forming a professional dental corporation, you can separate personal assets from business assets, limiting personal liability against lawsuits and creditors.
Advantages of a Professional Dental Corporation
One of the key advantages of a professional dental corporation is the legal protection it offers. While it cannot shield you from malpractice claims, it can protect your assets from claims arising from the malpractice of colleagues, some commercial claims, or employee-related lawsuits.
Additionally, a professional dental corporation allows you to build business credit, which can be beneficial when seeking partnerships or selling your practice without needing personal guarantees. By electing your professional dental corporation as an S-Corp, you can pass profits and losses to shareholders, avoiding double taxation and reducing self-employment taxes. Health insurance and retirement savings plans are just two examples of the additional perks a dental practice may provide its staff.
Proper Formation: Essential Steps
To ensure a successful formation, several steps must be followed:
- Choose a Compliant Name: California Secretary of State has naming restrictions for professional corporations. Your chosen name must meet these requirements to be approved.
- Write Up And Submit Articles of Incorporation: These documents must be drawn up and include specific clauses before a company can legally operate. These articles must be filed with the California Secretary of State.
- Prepare Corporate Bylaws: Corporate bylaws outline the structure and rules of your corporation. They should be prepared to ensure proper governance.
- Conduct Initial Corporate Meetings: Hold meetings to issue shares and elect officers and directors.
- Obtain an EIN Number: Apply for an Employer Identification Number (EIN) from the IRS, which serves as your corporation’s federal tax ID.
- Open a Corporate Bank Account: Establish a separate bank account for your professional dental corporation to maintain separation between personal and business finances.
- File an S-Corp Election (if applicable): If you choose to be taxed as an S-Corp, file the necessary election with the IRS.
- File a Statement of Information: California requires corporations to file an annual statement of information with the Secretary of State.
- Apply for Business Licenses and Fictitious Business Name: Depending on your practice location and requirements, you may need to obtain a business license and a fictitious business name.
Restrictions and Compliance
A professional dental corporation in California can only provide services in the field of dentistry. Shareholders must hold a valid dental license, although certain licensed professionals from similar fields can also be shareholders, officers, directors, or professional employees. However, the licensed dentist shareholders must outnumber the non-dentist shareholders, and the total shares owned by non-dentist professionals can be at most 49% of the corporation’s entire stock.
Annual shareholders’ and board of directors’ meetings must be conducted to protect and maintain compliance. These meetings serve to discuss and vote on various agenda items. Minutes should be documented to provide an official account of the decisions made. Additionally, filing the annual information statement with the California Secretary of State and conducting all corporate business in the corporation’s name is crucial.
Forming a professional dental corporation in California is complex, but it offers numerous advantages for dental professionals. Following the essential steps outlined in this article and ensuring compliance with legal requirements, you can build a solid foundation for your professional dental corporation. It is recommended to seek the guidance of experienced dental corporation attorneys to ensure the proper formation and ongoing compliance with the laws and regulations governing professional dental corporations in California.