Dentists as Sole Proprietors
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you are a dentist in need of legal advice, contact me (Michael Carabash) or David Mayzel.
If a dentist provides services to patients, but not as an employee as someone else, then they are running their own business. Dentists see themselves as professionals first, and business-people second. But the reality is that they are also running a business. If they are not able to earn enough profit to sustain themselves, then the business will fail; in this situation, the dentist will either have to become an employee of someone else, go bankrupt, or try their hat at something new.
In Ontario, businesses can take on generally 3 legal structures: Sole Proprietor, Partnership, and Professional Corporation. So what exactly are these business structures? How do you go about creating, maintaining, and ending them? What are the advantages and disadvantages when it comes to liability, decision-making, tax, and other issues? These and other questions are common, but not always answered. Sometimes, a lack or absence of communication can result in costly mistakes and even litigation. In this blog, I’ll kick off the discussion of the business of dentistry by discussing sole proprietorships.
If you are the sole owner and operator of your business, then you are carrying on as a sole proprietor. This unincorporated legal structure involves just one human being running the show. There is no separate legal existence between the person and the business. The sole proprietor has complete control over the work, the finances, the marketing, and engaging others.
The advantages of running a sole proprietorship include:
- Making all decisions;
- Reaping all profits;
- Working how and when you want to;
- Having more client contact;
- Being flexible; and
- Personal satisfaction of achieving success through your own knowledge, skills and experiences.
The disadvantages of running a sole proprietorship include:
- Being all alone;
- Lacking specialization;
- Succumbing to financial problems;
- Not being able to handle large or complex matters;
- Having responsibility over all administrative details; and
- No expense sharing or income-balancing with partners.
Ease of Creation
By far, creating a sole proprietorship is easier than creating any other type of business organization. Ontario’s Business Names Act provides that “[n]o individual shall carry on business or identify his or her business to the public under a name other than his or her own name unless the name is registered by that individual”. Registering a sole proprietorship’s name can be done by completing and submitting an on-line application for a Master Business License to: Companies and Personal Property Security Branch, Ministry of Government Services, 393 University Ave., Suite 200 Toronto, Ontario M5G 2M2. The cost is $60 and the Master Business License must be renewed every 5 years at a cost of $60. You’ll also need to get approval from the Royal College of Dental Surgeons about the name of the dental practice.
If a sole proprietorship’s owner stops working (e.g. retires, dies, goes bankrupt, etc.), then the business will cease to exist. In other words, a sole proprietorship has no continuity above and beyond the owner’s.
The owner is exposed to unlimited personal liability for the sole proprietorship’s debts and obligations. That being said, a sole proprietor will not incur liability as a result of anyone else’s actions or omissions (which may be the case with a partnership).
Income earned by a sole proprietorship flows to the owner, where it is fully taxed at the owner’s personal income tax rate. Despite this downside, the owner will be able to offset losses and business expenses from the sole proprietorship or any other source of income (e.g. businesses or property) against his or her personal income from any source of income. The fiscal year end for the sole proprietorship will be the same as for the individual owner – namely, December 31st of each year.