by Brenden | Jan 11, 2023 | Business Law, Small Business
S-corporations and C-corporations are two different types of business structures that are recognized under U.S. federal tax law. Both types of corporations provide limited liability protection to their shareholders, which means that shareholders are not personally liable for the company’s debts and liabilities. However, there are some key differences between the two types of corporations that can have a significant impact on how the business is taxed and operated.
Differences between C-Corporations & S-Corporations
Taxes
One of the main differences between S-corporations and C-corporations is the way they are taxed. C-corporations are considered to be separate entities from their shareholders, and they are subject to corporate income tax on their profits. In contrast, S-corporations are considered to be “pass-through” entities, which means that the company’s profits are passed through to its shareholders and taxed at the individual level.
This pass-through taxation can be a significant advantage for S-corporations, as it can help to avoid the “double taxation” that can occur with C-corporations. For example, if a C-corporation earns $100,000 in profits, it would be taxed at the corporate level, leaving $70,000 after corporate taxes. If the company then distributes the remaining $70,000 to its shareholders as dividends, the shareholders would then have to pay personal income tax on those dividends. With an S-corporation, the $100,000 in profits would be passed through to the shareholders and taxed at the individual level, avoiding the additional corporate tax.
Shareholders
Another difference between S-corporations and C-corporations is the number of shareholders they can have. S-corporations are limited to 100 shareholders, while C-corporations can have an unlimited number of shareholders. This can be a significant consideration for companies that are planning to go public or that have a large number of investors.
There are also some restrictions on the types of shareholders that S-corporations can have. For example, S-corporations cannot have non-resident alien shareholders, and they cannot have more than one class of stock. This can limit the flexibility of the business in terms of raising capital and issuing stock options.
Management
In terms of flexibility and management, C-corporations can have a board of directors, while S-corporations cannot. However, S-corporations can have more flexibility in terms of profit distribution. Unlike C-corporations, S-corporations are not required to distribute profits equally among shareholders, and they can choose to retain profits in the business if they wish.
Complexity and Disadvantages
One of the main disadvantages of S-corporations is that they can be more complex to set up and maintain than other types of business structures, such as sole proprietorships or partnerships. They are also subject to more regulatory requirements, such as holding annual meetings and keeping detailed records of the company’s financial and operational activities.
C-corporations also have their own advantages and disadvantages. They are considered more stable and with more prestige. They can also raise capital more easily and attract more investors, but it comes with the trade-off of double taxation.
Choosing Which Corporation
In conclusion, whether to choose an S-corporation or C-corporation depends on the company’s specific needs and goals. S-corporations can be a good option for small businesses that want to avoid double taxation and have a relatively small number of shareholders. However, they may not be the best option for companies that are planning to go public or have a large number of shareholders, as they have restrictions on the number of shareholders and types of shareholders they can have. C-corporations, on the other hand, may be a better option for larger companies that plan to raise capital and have more flexibility in terms of profit distribution and management structure. It’s important to consider all aspects of each type of corporation, weigh the pros and cons, and seek legal advice to determine which structure best suits your business. Please call Brenden Kelley Law at 216-644-3359 so that we can assist you starting your business.
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by Brenden | Dec 28, 2022 | Business Law, Dental Practice
Starting a new dental practice is an exciting time, but it’s important to ensure you’re in compliance with all relevant laws to prevent legal issues down the road. As a dentist, you must comply with all consumer laws, including those specific to medical professionals. Here are some of the most important issues to consider.
Consent: What You Need to Know
One of the most important issues for dentists is obtaining informed consent from patients before performing any dental procedure. Informed consent requires that you provide detailed information about the proposed treatment, viable alternatives, and any foreseeable risks of the procedure. You must answer any questions and get the patient to sign an informed consent form. Failure to obtain informed consent can result in legal action. If you’re unsure of the requirements where your practice is located, consult a dental lawyer.
Dental Patient Rights
As a dentist, you must uphold dental patient rights, as set forth by the Ohio licensing board. This includes standards related to care, reporting, records, and other dental patient rights issues. Any violations of these rights can lead to sanctions and lawsuits.
HIPAA: Protecting Patient Data
HIPAA sets the standard for protecting sensitive patient data, including dental records. This means that you must take the necessary steps to protect physical and digital records and information regarding patient diagnosis and treatment. Patient data must be kept confidential except when given written permission to disclose it to others, such as insurance providers.
Dental Malpractice and Clinical Negligence
Dental malpractice lawsuits can arise when a dentist fails to follow the generally accepted standard of care when treating a patient. This can result in nerve injuries, failure to diagnose oral cancer or periodontal disease, and wrongful tooth extraction. If you’re facing a dental malpractice lawsuit, consult a malpractice lawyer immediately. Clinical negligence lawsuits can be costly and complicated cases to resolve, even though payouts should ultimately be covered by malpractice insurance.
Associate Agreements: What to Look Out For
When considering associate agreements, carefully assess the merits of the offer and scrutinize for any limiting clauses, such as transfer of ownership of patient charts, non-solicitation provisions, and non-compete clauses. If you’re unsure of the potential legal implications of an offered associate agreement, discuss the contract with an attorney.
Practice Buy-Ins and Partnership Agreements: Know What You’re Getting Into
Partnership agreements will dictate your tax burden, legal liability, management responsibilities, and many other factors of your business. It’s important not to sign such a document unless you are sure that all the legal consequences are in your best interests—or at the very least that you are fully informed of their consequences.
Running a dental practice comes with a variety of legal issues that need to be carefully considered to avoid legal action. From obtaining informed consent to protecting patient data, upholding patient rights, and dealing with malpractice lawsuits, it’s important to work with a dental lawyer who can help you structure your practice to avoid problems and assist. Please call Brenden Kelley Law at 216-644-3359 so that we can assist you.
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by Brenden | Nov 20, 2022 | Business Law, Dental Practice
When starting a dental practice or restructuring an existing one, choosing the right entity and tax structure can be a crucial decision. However, there are many nuances and considerations that make it hard to pinpoint an all-encompassing answer. In this blog post, we will highlight some practical options for one or two-person dental practice entities.
Avoid Sole Proprietorship and General or Limited Partnerships
Sole proprietorships should be avoided since they do not offer personal liability protection for the dentist. All tax consequences and liabilities would be borne by the dentist, which is an unfavorable scenario. General and limited partnerships also lack limited liability protection, which makes them less desirable than other options.
Consider Limited Liability Companies and Corporations
For personal liability protection, it is best to form either a limited liability company (LLC) or a corporation. Both entities shield the owner(s) from the acts or omissions of the entity employees and other business operation liabilities. LLCs and corporations are both good choices when it comes to personal liability protection. However, they have different corporate formalities that must be followed. Corporations have more formalities, such as requirements to maintain minutes and have certain meetings, while LLCs do not have such obligations.
Understand the Tax Implications of Each Entity
When it comes to taxation, the entities have different requirements and implications. A partnership is a pass-through entity, which means all income, losses, and credits flow through to the partners’ individual income tax returns. However, partnerships must file a tax return even though the entity itself is not subject to tax. A C corporation is subject to double taxation, which means the corporation is taxed on all the business earnings, and those earnings are taxed again when paid out as dividends. An S corporation is subject to only one level of tax and can reduce the employment tax liability of the owners by managing their reasonable compensation in relation to the S corporation’s net-profit distributions.
For LLCs and corporations, the entities can be taxed as either a C corporation or an S corporation. However, if a dentist chooses a corporation as their entity, they must understand the corporation’s limitations in terms of tax flexibility from initial formation through to the sale of the dental practice.
Choose What Works Best for Your Dental Practice
There is no right or wrong answer when it comes to choosing the best entity and tax structure for a dental practice. Each option has its advantages and disadvantages, and the choice will depend on various factors, such as the number of dentists, business objectives, personal liability protection, tax implications, and more. Consulting with tax and legal professionals to help evaluate the options is a crucial step towards making an informed decision. Please call Brenden Kelley Law at 216-644-3359 so that we can assist you starting or restructuring your dental practice.
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