This article clarifies key issues regarding the relationship between dental practices and professional corporations, especially when adding another dentist or stockholder to the corporation. It provides insights into several important areas:

1. Terminology and Structure: An incorporated practice and a professional corporation are distinct; a practice is not a corporation, and a corporation can own multiple practices. The primary reasons for incorporating include limited liability, ease of ownership transfer, centralized management, and perpetuity.
2. Stock Ownership: Stockholders in a professional corporation should have equal shares. Control issues arise if one stockholder seeks to dominate decisions, potentially leading to conflicts. The value of stock is tied to the practice’s overall worth and not to any publicly traded market value.
3. Role and Responsibilities: Stockholders do not need to provide clinical services continuously but can contribute through non-clinical roles. New stockholders acquire shares from existing ones, not directly from the corporation.
4. Assets and Liabilities: Equipment, cash, and accounts receivable are corporate assets. Goodwill and restrictive covenants are not corporate assets but are tied to the individual stockholder’s personal relationships and agreements. Corporate liabilities include all debts and deferred compensation.
5. Compensation: Deferred compensation for stockholders should reflect unpaid clinical and management services. This compensation should be calculated before adding new stockholders and considered a corporate liability. Payment is typically spread over several years and contingent on non-compete agreements.
6. Stock Acquisition: The value of stock in a professional corporation is often minimal due to liabilities like deferred compensation. A typical stock purchase involves evaluating corporate assets and liabilities, with stock value often limited to its capitalization.
7. Governance: Corporate by-laws and shareholder agreements define the legal and operational framework of the corporation. Corporate minutes document decisions and changes in corporate structure or shareholder agreements, maintaining flexibility for future adjustments.

Overall, understanding these elements helps in managing the complexities of adding new stockholders to a professional corporation and ensuring clarity in ownership and operational responsibilities.

With over 100 years in the fields of dentistry, practice transitions, consulting, and financial planning, Legacy Practice Transitions is devoted to helping you achieve the best possible dental practice transitions as a buyer or seller. Our Practice Transition Consultants will assist you in determining your personal and professional needs, make sound recommendations on appropriate transition programs, and provide comprehensive support at every step.

For a personalized consultation, reach out to Nathan Courtney at 317-397-3612 or via email at Nathan@LegacyPracticeTransitions.com.