It’s a seller’s market out there. And some dentists don’t want to pay the kinds of premiums (over and above appraised values) that the sellers and their representatives are asking be paid. So what’s the alternative? Starting up your own practice from the ground up. But what kinds of legalities are involved in a startup? Well, that’s the topic of this blog.
Is it worthwhile to incorporate your startup dental practice? The answer, as is usually the case with the law, is “it depends”. If you’re a new grad with lots of tuition credits and you don’t expect to make more than $130k or so in income in the first few years, then it might not make sense to incorporate immediately. That’s because your corporation will not be able to take advantage of your personal tax credits in reducing its taxable income. If you’re an established dentist and looking to income split with family and ultimately sell your shares (in a few years down the road), it might make more sense to incorporate immediately. It’s best to speak with an accountant about this.
When it comes to borrowing and entering into contracts in a way to reduce your personal liability, incorporating is definitely the way to go. If your corporation borrows hundreds of thousands of dollars to start up a practice, then it will use after-tax dollars to repay that loan. The good news is that the corporate tax rate is much lower than your personal tax rate, so your corporation will have MORE after-tax dollars to repay the loan. When it comes to personal liability, having your corporation enter into contracts with landlords, staff, and vendors helps shield your personal assets.
Rent or Own?
There may not be many ideal buildings or units to purchase to put your dental practice into. Hence, you may only have the option of renting out a space. This will involve negotiating with the landlord to have a clear, comprehensive, and meaningful lease agreement. You should be mindful of things like:
- Paying fair rent (base rent typically)
- Having a long enough term
- Having a renewal option
- Having favourable terms when it comes to assigning / transferring the lease
- Having exclusivity in and around the premises
- Absence of a demolition or earlier termination clause
- Terms dealing with signage, parking, janitorial services, etc.
Many landlords will initially present an offer to lease which sets out the key terms upon which a formal lease will be drafted and negotiated. Make sure to have legal representation go through the offer to lease and lease agreement to ensure your rights are protected and interests are promoted.
Staff and Associates
Another big issue when starting up your practice is hiring the right staff and associates. And it’s best to document the relationship between you / your professional corporation and your staff and / or associates through written agreements. This will help prevent the whole he-said / she-said situation in the event of a dispute. Employment agreements and associate agreements should deal with things like:
- Roles and responsibilities
- Restrictive Covenants (e.g. non compete and non solicit)
- Ownership of dental records (particularly for associates)
Once you’ve decided on your business structure (e.g. personal, partnership or corporation), have entered into a lease agreement or bought a building / unit, and put all staff and associates on contracts, you’re basically ready to start practicing dentistry! Granted, there are other things you could be doing to help ensure smooth operations (e.g. technology management, marketing and advertising, human resources management, etc.). But having a proper structure and key agreements in place is where you need to start!