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What is a professional corporation and can it own a dental practice and/or its goodwill?

A professional corporation is a State chartered and regulated business entity formed for the purpose of conducting a business (or professional practice). Only a licensed professional can own the stock of a professional corporation. According to most State regulatory acts, only licensed professionals can “own” a professional practice. A professional corporation cannot own a practice, but it can, however, administer the business of a practice (hire employees, collect fees and pay bills), and it can own assets used to conduct the business of the practice (such as equipment, supplies, leasehold improvements, furniture and fixtures, etc.), but only to the extent of that corporation’s interest in the assets. A corporation may own some, none, or all of the assets of a practice, but not the practice itself.

The term “incorporated practice” is a misnomer. A corporation is a corporation, and a practice is a practice. Though closely related, they represent two distinct and completely separate entities. You can have a practice without a corporation and you can have a corporation without a practice. You can form a professional corporation to conduct the business of a practice, but the practice itself is not “incorporated.”

Assets acquired by the corporation which were expensed, depreciated or amortized, and are included under assets on the corporation balance sheet are considered corporate assets. Goodwill is an intangible asset created as a result of the personal relationship between the doctor (or doctors) and the patients of the practice. This doctor-to-patient goodwill is personal, not corporate owned; the patients would never consider themselves patients of the corporation. A professional corporation enjoys no relationship with the patients of the practice, so it has no goodwill to convey to a purchaser. The patients would not stop coming to the practice if the corporation was liquidated and the doctor continued to practice. When a practice is sold, goodwill is conveyed to the purchaser as a personal asset of the selling doctor. In order for goodwill to have any value, however, the seller must also agree to the terms of a reasonable restrictive covenant.

If the practice has been operated under a “generic” name that is trademarked and owned by the corporation, then there could be some goodwill value associated with that name and that would be considered a corporate asset. In a sale, the corporation would convey the right to continue using that generic name to the purchaser. The corporation would have to receive payment for any value associated with that generic name, and would be separate and distinct from the money allocated to the personal goodwill of the selling doctor. See Less

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Louisville, KY

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Potomac Falls, VA