Why Dentists Should Be P.C.: Without the Protections of a Professional Corporation, Your Dental Practice Can Cost You Everything

No respectable dentist can, should, or would treat patients without carrying professional liability insurance. Legal obligations aside, dentists have such coverage so that if an alleged error leads to a very real claim for damages by an aggrieved patient, their insurer will be the one taking the hit, not them. Covered dentists need not worry so much that a malpractice lawsuit will cost them their home, their bank accounts, or any other hard-earned personal assets.

But malpractice insurance doesn’t cover claims by unpaid service vendors or equipment suppliers. It won’t protect a dentist from a breach of contract judgment or allegations of financial misconduct relating to their practice. There are a plethora of potential liabilities that can arise from the practice of dentistry that have nothing to do with the quality of patient care. And if you are a solo practitioner or own a dental practice and have not availed yourself of the significant protections afforded by forming a professional corporation or other entity, you are leaving yourself and your family exposed to catastrophic financial peril.

Dentists Are Business Owners Too

Illinois, like all other states, allows business owners of all stripes – from restaurateurs and entrepreneurs to manufacturers or mom-and-pop retailers - to form corporate entities through which they operate their businesses. These include corporations, limited liability companies, and limited partnerships.

So long as the owners follow all appropriate legal requirements and formalities and no fraud is involved, these entities offer owners, partners, directors, officers, and shareholders protection from personal liability for the debts, obligations, and liabilities of their business. They also come with significant tax advantages.

For a long time, the law did not allow professionals like dentists, physicians, and lawyers to form the entities available to other business owners; the underlying rationale being that such professionals should not be permitted to insulate themselves from the consequences of their own negligence or the harm they cause patients or clients.

Eventually, however, legislatures across the country finally recognized that medicine, dentistry and the law were as much businesses as they were professions and created new structures specifically for professional practices. While these professional corporate entities share many similarities with non-professional companies, they have substantial differences in terms of who can participate in ownership, professional licensing requirements, and the extent of protection from personal liability.

The Illinois Professional Services Corporation Act

The primary corporate vehicle through which Illinois dentists operate their practices is a professional corporation, an entity created by the Illinois Professional Services Corporation Act (the “Act”). When you see the letters “P.C.” after an entity’s name (as you do with our law firm), that refers to this type of corporate structure.

As set forth in the statute, its purpose is “to provide for the incorporation of an individual or group of individuals to render the same professional service or related professional services” while at the same time “preserving the established professional aspects of the personal relationship between the professional person.”

Only Licensed Dental Professionals Can Own or Manage a Dental Professional Corporation

Balancing the business and practice of dentistry and other professions means that the law imposes limitations on who can participate in the ownership and management of a professional corporation.

For dental practices, only those dental professionals who must be licensed by the Illinois Department of Financial and Professional Regulation (IDFPR) can serve as shareholders, directors, or officers in the corporation. This means that there can be no passive investors or owners who are not licensed dental professionals.

In addition to requiring that owners and officers have valid professional licenses, the law mandates that the professional service corporation itself must be licensed by IDFPR.

Personal Liability Protection – If You Follow The Rules

A duly established professional corporation can insulate its owners and officers from personal liability for the debts of the corporation. That protection is the primary reason that business owners in every industry or profession form corporate entities. But as with all entities, that protection is not absolute.

Forming a professional corporation is not a matter of “set it and forget it.” There are a host of ongoing requirements which owners must follow in order to keep the shield between themselves and their business’ liabilities. Many of these are corporate “formalities” such as filing annual reports, maintaining all professional licenses, and keeping proper corporate records.

But the greater danger for dentists (and all business owners) comes from not treating their business as a separate entity. If a professional corporation is in reality merely an “alter ego” of its owner or owners, determined corporate creditors can seek to “pierce the corporate veil” and hold those owners responsible for the company’s obligations.

Examples of conduct which could lead to veil-piercing include:

• inadequate capitalization;
• insolvency;
• commingling of funds;
• diversion of assets from the entity by or to a member to the detriment of creditors;
• failure to keep arm’s-length relationships among related entities; and
• whether, in fact, the corporation is a mere facade for the operation of the dominant members.

Additionally, a creditor can pierce the professional corporation’s veil if “adherence to the fiction of a separate corporate existence would sanction a fraud, promote injustice, or promote inequitable consequences.”

Given the potential pitfalls and stumbling blocks involved in preserving the benefits that a professional corporation provides, and the potentially devastating consequences of losing those benefits, it is critical that dentists consult consistently with an attorney who understands the nuances and requirements involved in keeping their practice on a solid legal footing.

No Personal Protection For Malpractice Claims

While a properly organized and managed professional corporation can protect a dentist’s personal assets from creditors and business-related claims, it affords no such insulation against dental malpractice lawsuits.

The Illinois Professional Service Corporation Act states that officers, shareholders, or directors “remain personally and fully liable and accountable for any negligent or wrongful acts or misconduct committed by him, or by any ancillary personnel or person under his direct supervision and control, while rendering professional services on behalf of the corporation to the person for whom such professional services were being rendered.”

Protect Yourself and Your Family. Call Us Today To Learn More.

No matter how talented and skilled a dentist you are, no matter how much your patients like and respect you, and no matter your other professional accomplishments, you remain vulnerable to losing everything if you fail to attend to the business and legal issues which are critical to maintaining a successful practice.

At Grogan, Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you.

Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation.

Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices, and this blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.