What’s the Best Legal Entity for Your New Dental Practice?

dental practice

Starting a new dental practice can be an exciting venture, but it also comes with many important decisions that need to be made, including choosing the best legal entity for your practice. The legal entity you choose will significantly impact how your practice operates, your tax obligations, and your personal liability.

Sole Proprietorship

A sole proprietorship is the simplest and most common legal entity for small businesses. In this structure, you are the only owner of the practice, and you’re personally responsible for all debts and liabilities. You must report your business income and expenses on your personal tax return, and you will need to pay self-employment taxes on your net income.

Although a sole proprietorship is easy and inexpensive to set up, it offers no liability protection and could put your personal assets at risk in case of a lawsuit. Therefore, it’s not recommended for dental practices.


If you are starting a dental practice with one or more partners, a partnership may be the right legal entity for you. In a partnership, two or more individuals share ownership of the practice and are jointly responsible for all debts and liabilities. 

A partnership agreement can establish the terms of the partnership, including the division of profits and losses, the roles and responsibilities of each partner, and the procedures for decision-making and dispute resolution. Partnerships also require separate tax returns, but the partners are not subject to self-employment taxes.

While partnerships can offer the benefits of shared resources, expertise, and risk, they also require a high degree of trust, communication, and alignment among the partners. Disagreements and conflicts can arise, and a poorly designed or executed partnership can lead to financial losses and legal disputes.

Limited Liability Company (LLC)

An LLC is a popular legal entity that combines the simplicity of a sole proprietorship or partnership with the protection of personal assets that comes with a corporation. For this structure, the owners (called members) have limited liability and are not personally responsible for the debts and liabilities of the practice.

LLCs offer flexibility in management and taxation. They can be managed by the members themselves or appointed managers, and they can choose to be taxed as a partnership or a corporation. This allows for a customized approach to management and taxation that can fit the practice’s needs.

However, forming an LLC requires complying with state laws and regulations, as well as filing articles of organization and operating agreements. LLCs may also have higher tax and legal fees than sole proprietorships or partnerships.


Corporations are separate legal entities from their owners, meaning they can enter into contracts, sue and be sued, and hold assets in their own name. This can limit the personal liability of the owners in case of legal disputes or financial liabilities.

A corporation can issue stocks to raise capital, making it easier to attract investors. Corporations also have a clear structure with a board of directors, officers, and shareholders, making decision-making and management more efficient.

The major downside of corporations is they are subject to double taxation, meaning the business’s profits are taxed at the corporate level and again when distributed as dividends to shareholders. They also require more formalities, such as holding regular meetings and keeping detailed records, which can increase administrative costs.

Choosing the Best Legal Entity for Your Dental Practice

When deciding on a legal entity for a dental practice, consider the following factors:

1. Liability Protection

Dental practices face potential liabilities from malpractice claims or other legal disputes as healthcare providers. Choosing a legal entity, such as a corporation or LLC, can provide personal liability protection for the owners.

2. Tax Implications 

Different legal entities have varying tax implications. A sole proprietorship is taxed as personal income, while a corporation has lower tax rates and may deduct certain expenses. Consulting a dental CPA can ensure the practice is structured to minimize tax liabilities.

3. Management Structure

A clear management structure can ensure efficient decision-making and accountability. Corporations have a clear hierarchy with a board of directors, officers, and shareholders, while LLCs can have more flexibility in the management structure.

Key Takeaway

The right legal entity for your new dental practice will depend on your specific goals, needs, and circumstances. Consult a lawyer and dental CPA to determine the best option for your practice and ensure you comply with all legal and tax requirements. With careful consideration and expert advice, you can choose the legal entity that best supports your new dental practice.

At Ash Dental CPA, we understand the unique needs of dental practices and specialize in providing comprehensive accounting, tax, and consulting services. Our dental accountants in Framingham, MA, can help guide you through the process of choosing the best legal entity for your practice and provide ongoing support to help you achieve your business goals. Book an appointment with us to learn more!