If that question itself seems somewhat foreign to you, rest assured you’re not alone. Most people have never thought of this sort of thing until they actually attempt to start their own businesses. Nevertheless, it is the case that there are various types of business entities you can form, and some may be better than others for a dental practice. Generally, the most common options for new businesses are sole proprietorships, limited liability companies (or LLCs), partnerships, or corporations. Below, we’ll discuss a few of the questions you may want to ask yourself about your practice, and then determine which type of entity may be the best fit.
Are you concerned about taxes?
Some are surprised to learn that different types of business industries actually yield very different tax situations. And depending on where you may live, this may have a significant bearing on your choice. If you’re in Arizona for instance, where our platform is based, you may want to consider a structure that relieves you of some corporate taxes. Arizona’s combined corporate tax rate is 24.9%, which actually ranks fairly low, but which also represents a burden, not all business entities need to pay in full. In particular, sole proprietorships and LLCs allow owners to cover business earnings as personal income, without paying separate corporate taxes.
Have you considered a liability?
Liability is a very important concern for dental practice. To put it simply, some types of entities protect owners from business liability, and others do not. Without liability protection, you can be personally held accountable if the practice issued, or if for whatever reason significant debts need to be collected against it. An LLC is essentially designed to avoid this specific problem, and to form an LLC in Arizona all that one really needs to do is make a few organizational decisions and handle a few government forms. It is thus a very appealing option, not just locally but for all dentists starting their own practices. That said, the corporation structure also protects against personal liability.
Will you have partners?
There’s no question that your practice will need some administrative employees, and we’ve discussed the role of dental assistants as critical components of successful practice as well. But in determining what sort of entity your practice will be, you’ll also need to consider whether or not you’ll have any partners. As you might guess from the name, a partnership is an entity specifically designed for two or more people who may want to own equal shares of a business. The downside is that it does not inherently involve liability protection — though there is such a thing as an LLP or limited liability partnership.
Would you like a professional title?
One important aspect of your practice beyond dentistry itself will be an advertisement — or at least acquiring a reliable client base. This means standing out from the crowd, which may be more or less difficult depending on your immediate competition. Date regarding each state’s dental businesses actually indicates that Arizona has relatively few people in this profession compared to some other states, and that certainly helps someone opening a new practice. Even so, though, effective branding and advertising will go a long way. A lot goes into this, but having a professional title or label for your practice is crucial. In this regard, we’d simply note that sole proprietorship doesn’t have much to offer, nor does a general partnership. On the other hand, branding practice as an LLC, LLP, or corporation gives it an official, professional air that prospective clients will notice.
Considering all of these factors and questions, it would certainly appear that an LLC or LLP structure is, on the whole, most sensible for a new dental practice. But this is something you should think over personally and with respect to your own goals for the business as well. The type of entity you opt for will go a long way toward defining how your business operates.