In brief
Most BC dentists practise as an employee, as an associate, as a co-owner of a practice, or by sharing costs with other practices, often through a dental corporation. Each structure affects control, compensation, liability, tax and estate planning differently, and structures are often combined and change over time.
Dentists can practise under a variety of legal and contractual arrangements. A dentist may work as an employee or as an associate of a dental practice. As an associate, the dentist may operate either individually or through a professional corporation. Dentists may also join forces to co-own a practice or simply share costs among independent practices. Each structure has different implications for control, compensation, liability, tax and long-term estate planning. In practice, a combination of structures is often used to achieve the dentist’s objectives, and the structure will likely change over time as circumstances or objectives change.
This article gives an overview of four common structures for dentists practising in British Columbia. Most are covered in more detail in their own articles.
What are the four common structures?
The four common structures are employment, an associateship, co-owning a practice, and a cost-sharing arrangement. They differ mainly in who owns the practice, who carries its costs and risks, and how the dentist is paid.
Structure | Basic relationship |
|---|---|
Employee | Dentist works for the practice as an individual employee (not through a dental corporation) and is paid a salary. |
Associate | Dentist practises within an established practice, either as an individual associate or an associate through a dental corporation. |
Co-ownership | Dentists carry on a practice together. |
Cost-sharing | Independent dental practices share specified overhead and resources. |
How do the structures differ?
The label the parties give an arrangement does not always decide its legal character, so both the written agreement and the way the arrangement operates in practice matter. Dentists considering a structure should obtain legal advice before making their arrangements to ensure they will function as intended.
Employee. An employee dentist works for a practice under an employment relationship for a salary that may be fixed, commission-based, or a combination of the two. Dentists do not enjoy the statutory protections available to other employees under the Employment Standards Act (e.g. minimum wage, vacation pay, and termination notice)[1]. Therefore, legal advice should be sought to ensure the intended arrangement is documented properly.
The employer runs the practice, covers its expenses, and carries the business risk. The employer is required to withhold income tax and other statutory deductions from the employee’s pay and remit them to CRA. If the practice is run through a corporation, the directors of that corporation can be held liable for unremitted statutory deductions.
Associate. An associate practises within an established practice without owning it, typically under an associate agreement and for a percentage of billings.
Depending on the nature of the relationship, the dentist may be considered either a dependent or an independent contractor and therefore have rights and obligations that arise accordingly.
As independent contractors, associates generally have more autonomy than employees and bear more of their own costs and financial risks. Associates are also responsible for their own tax remittances.
Legal advice should be sought to ensure that, regardless of the label, an associate relationship is properly structured to function as intended; otherwise, CRA can take the position that it was an employment relationship and that the “employer” must remit the statutory deductions that should have been remitted. Our article Should a dentist work as an employee or an associate? compares the two.
Co-ownership. Unlike professions such as law, the legislation licensing dentists does not allow dentists to practise through a limited liability partnership. This leaves only a general – riskier – partnership structure available to dentists. A general partnership is not common among dentists, as it would create a risk that any one partner’s liabilities or actions also become the liability and responsibility of the other partners, regardless of their internal agreement to the contrary. Therefore, to join forces, dentists should use a cost-sharing structure or become shareholders of a dental corporation instead of forming a partnership. See How is co-ownership of a dental practice structured?
Dental corporation. A dental corporation is a separate legal entity through which dentists practise, with permission from the BC College of Oral Health Professionals (BCCOHP). It can be used with most of the structures above. Its shareholders can include individual dentists, their family members, family trusts, and holding companies, subject to ownership rules. It can offer tax deferral and planning flexibility for dentists, and significant tax savings on a future sale of a dental practice. Incorporating does not change a dentist’s professional negligence liability, but it can limit other liabilities, such as those under a lease or a contract with a worker. In addition, subject to certain limitations, a corporation can be structured to creditor-proof a dentist and shield the dentist’s assets from monetary liabilities in the future, even if the dentist is found to have been negligent. See What is a dental corporation, and who can own one in BC? and Does incorporating a dental practice save tax?
Cost-sharing. In a cost-sharing arrangement, dentists who run separate practices, whether individually or through dental corporations, share specified overhead, such as lease payments, while keeping their profits, losses and practices separate. Legal advice should be sought to ensure that a cost-sharing arrangement does not unintentionally make the parties partners, in which case one partner’s liability can become the liability of the other partners regardless of their internal agreement. See How is co-ownership of a dental practice structured?
Can dentists combine structures?
Yes. The structures are not mutually exclusive, and a dentist may use more than one at the same time.
For example, an associate may be engaged as an individual or may incorporate a dental corporation, which would enter into the associate agreement. A dental corporation’s shareholders may include both individual dentists and companies owned by dentists. Separate practices, whether owned through a corporation or individually, may also share costs.
What should drive the choice?
Choosing a practice structure is both a legal and a business decision. The appropriate arrangement may depend on the dentist's goals, the intended relationship with other dentists, and tax and estate planning objectives.
A structure may change over time as objectives or circumstances change. For example, a dentist may opt for a cost-sharing arrangement initially to get to know other dentists to assess whether becoming shareholders of a dental corporation with them would be sensible.
Questions worth considering early include:
What business arrangements does the dentist wish to have with other dentists?
How are patients brought into or maintained within the practice?
How much credit and capital can the dentist obtain for starting or acquiring and maintaining a practice?
How much risk of loss is the dentist willing to tolerate?
How much control over staffing and the management of the practice does the dentist want?
Notes
Section 3 of the Employment Standards Act, RSBC 1996, c 113; and paragraph 31(2)(c) of the Employment Standards Regulation, BC Reg 396/95.
This article is select general information about the laws of British Columbia, including the federal laws of Canada applicable in British Columbia, as of its publish or last-reviewed date. It is not legal advice and does not create a solicitor-client relationship. Please obtain advice about your specific situation before acting. See our Disclaimer.