The Incorporation of Your Dental Practice –
Part 4 of 4 : Summary and Conclusion
By Pierre de Boucherville
Contrary to popular opinion, there are many elements to consider before getting a business corporation created for you, as a dentist: first and foremost, you must decide if you wish to create a corporation under a Quebec charter or a Federal one. The Quebec corporation is a good choice if you plan to do business only within the Province. If your plan is to build a chain of clinics across Canada, a Federal charter is recommended.
This first choice is only the tip of the iceberg.
Depending on your personal situation, present and within a foreseeable future, various types of corporate structures are available to choose from in order to take the most advantage of the many benefits offered by an incorporation.
To properly structure your business and personal interests, I can only recommend that you seek advise from an accountant (such as my partner, Rémi Dijoux) or tax specialist who is versed in the most recent developments in tax matters.
FOR THE INCORPORATION OF YOUR PRACTICE
Two main types of benefits favour the use of a business corporation for your dental practice: tax benefits reserved to business corporations and benefits related to the protection of corporate assets.
Tax Benefits: a partial list
1-Lower tax rate when compared to the rate which applies to individuals;
2-Potential Capital Gain Exemption of $835 716;
3-Savings on financing;
4-Income tax deferral;
5-Income splitting (as long as the July 2017 proposed legislative change are not in effect);
6-Reduced cost of non-deductible expenses;
7-The possibility of doing an estate freeze;
8-The possibility of paying a $10 000 tax-free death benefit to the estate of the main shareholder;
9-The non-application of the restrictions on home office expenses;
10-Access to various tax credits (R&D and others).
Benefits Related to the Protection of Assets
11-The creation of a business corporation (an independent moral person under law) limits your personal civil liability with regards to various matters, particularly those of a financial nature: this is called the corporate veil;
12-A business corporation is an entity with a perpetual existence, and its ownership is easily transferable;
13-It is easier to finance a business corporation;
14-A business corporation facilitates the planning of your estate;
15-A business corporation facilitates the liquidation of your estate.
Be careful! A dentist who changes status from being an individual operating a dental clinic (or a recent graduate, or an associate dentist who is leaving a practice to start a new one) to becoming a shareholder in a business corporation must report this new situation to many parties: the Order of Quebec Dentists, insurance companies, banks, various levels of government, suppliers and patients…
AGAINST THE INCORPORATION OF YOUR PRACTICE
Main Disadvantages of a Business Corporation
-The corporate veil may be lifted and your personal liability may be held in certain cases;
-The business corporation (rather than you, personally) owns the dental practice and its assets;
-A personal guarantee may be requested when the corporation needs to borrow funds;
-Initial and recurring fees must be paid to maintain the corporation’s existence in good standing (government, accounting and legal fees);
-Loans to shareholders are subject to some restrictions;
-If the dental practice was in operation before the creation of the business corporation, its owner loses the benefit of amortization during the year in which the transfer of assets between himself and the corporation takes place.
The vast majority of dentists in Quebec will find many benefits in structuring their business in one or more corporation(s).
The complexity and costs of forming and maintaining a business corporation are easily offset by the generous fiscal regime reserved for business corporations.
The limited liability of the corporation, which extends to its assets only, protects its shareholders who may not usually lose more the investment they put in the corporation- in the absence, obviously, of personal guarantees of corporate loans or in events of professional liability, since the existence of a corporation does not shield a dentist from his ethical obligations.
One thing will remain certain now and in the future: the evolution of fiscal rules will always warrant a strong recommendation to consult a specialist for the organization of your business (and personal) interest.
Any lawyer who has your best interests at heart will tell you, as I do now, to see an accountant and/or a tax specialist to prepare a financial strategy before deciding to create a business corporation, which remains a simple step in a complex plan.
Following your decision to set up a corporation, your lawyer will help you to properly do so and to maintain it in good standing, by producing the annual reports and corporate resolutions as required by law, which reflect the evolution of the business activities of your practice, such as getting financing, signing a lease, selling or buying shares, etc.
Call us without delay: always toll-free and without any obligation so that we may discuss how we may help you.
DISCLAIMER : Please note that the information contained in our articles does NOT constitute legal advice. It is provided for educational purposes only. Laws are subject to change without notice. The content of our articles may be outdated. If you need legal advice ore representation, please contact Pierre de Boucherville.