5 Legal Problems to Avoid as a Small Business or Dental Practice Owner
It’s a fact of life, and a fact of business – mistakes happen all the time. But when business mistakes turn into legal problems, they can mean the difference between small business success and failure. Knowing what legal pitfalls to watch out for when running your dental practice can make a huge difference. Take note of five common legal problems that are best to avoid.
- Not formalizing your small business structure. If your practice is small, you might think it’s bothersome to complete all the documents of incorporation. However, structuring your entity formally in accordance with the law – regardless of size – can serve as important legal protection. For example, your personal assets could be in jeopardy in the event of a lawsuit, if you haven’t taken steps to separate them from your business, or otherwise taken steps to protect them.
- Violating business’ trademarks. If you have been suspected of infringing on an intellectual property right, such as a copyright or trademark, of another business, you open yourself up to a potential financially harmful lawsuit. In some cases, a intellectual property infringement can result in a “cease and desist” order, which means you must halt your business activity. Check with your attorney or the U.S. Patent and Trademark Office to ensure you’re intellectual property is yours – and yours alone.
- Not formalizing contracts. “Handshake deals” are a common practice in business. While they may happen on the golf course, make sure you formalize the contract in writing. In today’s bountiful litigious society, formalized contracts protect you, your dental practice and the third party.
- Failing to get legal advice. In an attempt to save money on legal costs, many startups and small dental practices either avoid hiring an attorney or try to get by by crafting their own legal documents. However, every business is unique, and if you enter into agreements that don’t protect you or your businesses’ interests, these actions may end up costing you significantly more had you sought legal council in the first place.
- Ignorance of the law. Every small business needs to heed the various laws that envelope the operation of the business and industry. Security laws relating to your investment capital, employee/employer laws, government industry regulations and abiding by intellectual property right laws are some of the areas with which to ensure compliance.
Keep in mind that these five points are intended as legal information, which isn’t the same as legal advice. Every dental practice is unique, so seek legal advice from a licensed attorney for your individual circumstances.
What is a PEO?
The acronym PEO stands for “professional employer organization.” These organizations help businesses reduce costs by allowing them to outsource the management of important company functions, such as workers’ compensation, payroll, employee benefits and human resources. By partnering with a PEO, a dental practice or other company can grow its bottom line and focus on its core tasks, such as marketing, production and customer service.
The Function of a PEO
When a dental practice begins working with a PEO, the PEO takes over many of the company’s most cumbersome human resource responsibilities. In addition to handling everyday human resource tasks, the PEO also assumes some of the employer’s legal responsibility for human resource issues, such as unemployment and healthcare, thus reducing the employer’s level of risk.
Once the employer establishes his relationship with the PEO, the PEO begins functioning as a second employer for its clients employees. Instead of coming to their legal employer with human resource concerns, employees will go to the PEO. The PEO manages all of the company’s human resource dealings on a daily basis, and the company no longer needs to worry about the accuracy of its payroll or whether its healthcare plan complies with federal regulations. Many PEOs even offer a comprehensive benefits package for employees that allows the PEO’s clients to become more competitive within the industry.
Benefits of a PEO
The business industry is always evolving. Congress enacts new laws, such as the recent change to healthcare regulation, and businesses must alter their procedures to comply with the new guidelines. When a company is small, keeping up with the constant changes can be nearly impossible. Instead of focusing on their most important tasks, employees are forced to spread themselves too thin. Furthermore, because employees are inexperienced in these areas, tasks are not completed as accurately and efficiently as they should be.
When a dental practice hires a PEO, most of these problems disappear. Instead of relying on its own overworked and under-prepared employees to handle unemployment insurance claims, payroll tax compliance, workers’ compensation claims and issues with employee healthcare, companies can rely on a PEO’s experts to take care of all of these obligations. Not only are these facets of the company’s operations dealt with more effectively, but employees also find themselves with more time to concentrate on activities that produce revenue for the company. Furthermore, all human resource tasks are completed with efficiency, and the company’s bottom line improves.
Business Structure Basics for Dentists
If you’re starting a dental practice or altering the framework of your existing one, be sure to choose the correct business structure and file the right income tax forms.
We don’t have to tell you how many decisions you have to make when you start a new business, or when your existing company changes in significant ways.
The most important issue you have to settle in terms of income taxes is your business structure, which provides answers to three basic questions:
- Who is the company owned by?
- How does the company distribute profits?
- How are management tasks distributed?
You’ve heard their names a lot in the past, but you may not have known what great significance they would have for you as a business owner. Each has its own set of attributes, and each requires a different set of IRS tax forms and schedules.
Here’s a look at these options.
Sole Proprietor: This is fairly self-explanatory. Do you own an unincorporated business by yourself?
Limited Liability Company (LLC): You can be considered an LLC even if you are the only person involved in the business, but there is no maximum number of “members.” Each state establishes its own regulations for LLCs, so you’ll need to do some research if this is the structure you choose. We can help with this.
You’ll be treated by the IRS as either a corporation or a partnership.
Partnership
If you and one or more other individuals contribute to the business (money, property, skills, etc.) and share in both profits and losses, the IRS considers you a partnership. Partners are not considered employees, and the corporation does not pay income tax, though it’s required to file an informational return outlining income, deductions, etc. Profits or losses get “passed through” to the partners, and they must include information about their share on their own tax returns.
Corporation
Rather than being called “partners,” the participating individuals in a corporation are called “shareholders,” individuals who exchange money or property or both for capital stock. There’s actually a double tax involved in this type of business entity. The corporation pays taxes on profits, and then the shareholders are taxed when they receive dividends.
S Corporation
S Corporations avoid double taxation by passing through income, losses, deductions and credits to their shareholders, who include this income and loss on their personal tax returns – at their individual income tax rates. S Corporations must:
- Be domestic corporations
- Consist of “allowable” shareholders (i.e., individuals and some trusts and estates, but not partnerships, corporations or non-resident alien shareholders)
- Have a maximum of 100 shareholders and only one class of stock
- Not be an ineligible corporation, like some financial institutions and insurance companies
These are very general descriptions of the most common business structure classifications. If you’re deciding for the first time which you should choose for your dental practice, or if your company is planning a major organizational shift that will necessitate changing your business structure, we’ll help you explore the options and help you determine the most appropriate entity type.
Follow Us!