Can a Dentist Limit Personal Liability By Forming an LLC or Corporation?
Operating your dental practice as a sole proprietor or in partnership with other dentists exposes you to personal liability for your business debts. In a worst-case scenario, your business creditors can collect unpaid business debts from your personal assets, such as your home and cars. To protect yourself from this situation, you can create a separate legal entity to operate your business. Although many states do not allow dentists to form a regular corporation or LLC, all states allow dentists to form either a professional corporation or a professional limited liability company to protect their personal assets from business debts.
The primary reason most business owners form either a corporation or LLC is for personal liability protection from business debts. Because corporations and LLCs are legal entities separate from their owners, these entities can only be created by filing out the appropriate documents with the state agency that oversees them, such as the secretary of state or corporation commission. Each state sets its own document requirements which, in most cases, can be found online from the state agency's website.
In many states, some licensed professionals cannot form a regular corporation or LLC to operate their business. These professionals are required to form legal entities referred to as either a "professional corporation," "professional services corporation" or "professional limited liability company." Although the list of licensed professionals required to form one of these legal entities varies by state, medical professionals such as dentists are usually included on the list. Among other requirements, the names used for these types of entities must include designations such as "PC" "PSC" or "PLLC" to indicate to the public that they are providing professional services. California law only permits licensed professionals, including dentists, to form a professional corporation and expressly prohibits licensed professionals from operating as an LLC.
One area of personal liability that you cannot avoid by operating your dental practice as a corporation or LLC is professional malpractice. If you injure a patient because of your negligence, you are personally liable for the patient's damages. The only effective way to deal with personal liability for professional malpractice is to purchase a malpractice insurance policy. If you operate your dental practice with other dentists, however, forming a corporation or LLC protects you from malpractice claims made against the other dentists.
After forming a corporation or LLC to operate your dental practice, your liability protection can be lost if you do not follow certain continuing legal requirements or formalities. Most states require some annual or biennial filings, such as Ohio, where professional corporations must file a biennial report that identifies all of its shareholders and certifies that each is properly licensed. Failure to file such reports can result in the corporation or LLC getting suspended or having its licensed revoked, which exposes the owners to personal liability.