Tuesday, December 27, 2011

Dental Scratch Start-Up - One Corporate Entity or Two?

I'm in the process of having another office. A scratch.

Should I open it under my current corporation, or should I start it under a different corporation.
Maybe in about 3 years, I'd like to sell my current corp. I don't know. But it’s just more paper work to start a second corp. Is it worth the hassle?

Any thoughts on what is the right way to go? Pros and cons.


In my opinion, the key to the answer is in your question and that is if you're contemplating selling EITHER location soon and not the other, I would suggest you have a different entity. Why?

1. It helps keep things separate in order to better evaluate the practice.
2. It should limit any potential liability to that practice that has the problem.
3. If you sell one and not the other, you don't have to "open the books" of the one you're keeping.

Now, if you plan on having both locations for 10-15+ years you could go with one entity initially and then separate them 3-5 years before you plan to sell one.

Believe me, this comes from experience. When the potential buyer evaluates the practice, and it's combined with another practice, you ask a lot more questions. As the seller, you have a lot more explaining to do and a lot more convincing to do that supply expense is really JUST for that office and not the other, that lab expense is JUST for that office and not the other, etc.

The argument will be "well even with two entities you can still have the one entity pay the other’s bills" and this is true; however, at some point you have to give the benefit of the doubt until proven otherwise in my opinion.

What kinds of savings would there be with only having one entity?

The savings of a second tax return, bookkeeping, accounting, other state filings maybe.

 I heard that section 179 is scheduled to come back down to $25,000 per year.  That would be very bad to have two practices under the same entity. 


Can you elaborate on any thoughts you have.

Not much more than what I did above unless you have any other specific questions.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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