Forming a Professional Corporation for Your California Dental or Veterinary Practice

Most dentists and veterinarians start their careers as employees or associates, and when they buy or open a practice, the legal entity behind it often gets decided in a hurry. In California, the usual choice for a licensed professional is a professional corporation — and getting that choice right at the start saves real trouble later.

Why a professional corporation?

California law generally requires licensed professionals, including dentists and veterinarians, to practice through a professional corporation (PC) rather than a regular corporation or a limited liability company.

A PC separates the practice's business from your personal finances, so practice debts and obligations are generally the corporation's, not yours personally. It also gives you a clean structure for bringing in a partner, paying yourself a salary, and planning for taxes.

What makes a professional corporation different

A professional corporation looks like an ordinary California corporation, but with rules specific to licensed professionals. Only licensed professionals in the same profession may own its shares, and the corporation must be registered with the relevant licensing board — the Dental Board of California for dentists, or the Veterinary Medical Board for veterinarians. The corporation's name must include a professional designation, and its articles of incorporation must state that it is a professional corporation.

Choosing the right structure from the start

Before forming a PC, consider how the practice will operate. Will you have partners now or later? Will you employ associate doctors? Do you plan to own the real estate separately from the practice? The answers shape whether a single PC is enough, or whether a related management entity makes sense for the non-clinical side of the business. California's rules on the corporate practice of medicine, dentistry, and veterinary medicine limit who can own and control a practice, so the structure has to be built around those rules — not around them.

Tax and sale considerations

Entity choice also affects taxes and a future sale. A professional corporation can elect how it is taxed, and that election changes how income flows to the owners. It also matters when you sell: buyers of dental and veterinary practices usually prefer to buy the practice's assets, and a PC that has kept clean books, proper licenses, and separate accounts makes that kind of sale far smoother. Sloppy entity records, on the other hand, are one of the most common sources of delay in a practice sale.

Common mistakes to avoid

Three mistakes come up again and again. First, forming the wrong entity — a regular LLC or corporation — and discovering the problem only when a lender, insurer, or buyer asks for the paperwork. Second, failing to register the professional corporation with the licensing board, which leaves the practice operating out of compliance. Third, mixing personal and practice finances, which can undermine the very protection the corporation is meant to provide.

Getting it right

Forming a professional corporation is not complicated, but it is one of those decisions that is much cheaper to make correctly at the beginning than to fix later. If you are buying a practice, starting one, or bringing on a partner, review your entity structure with a healthcare transactions attorney before you sign anything.

This post is for general information only and is not legal advice. To discuss the right structure for your dental or veterinary practice, contact Mostofi Law Group at 1-866-247-9420.