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1405 Route Transcanadienne, Suite 400, Dorval (QC), H9P 2V9

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ASSETS VS.SHARES

SELLING THE SHARES OR ASSETS OF A DENTAL PRACTICE

Buying or selling a dental practice can be structured in two ways: a share sale or an asset sale.  In other words, a dentist may choose to either buy the shares of a clinic that is incorporated or just buy the assets of the dental practice when the selling dentist has chosen not to incorporate. How the deal is structured is one of the most important factors to consider since the legal and tax consequences differ quite significantly.

CONSIDERATIONS FOR THE SELLING DENTIST:

When a dentist is considering selling his dental practice in the near future, it is extremely beneficial to incorporate the dental practice prior to the sale in order to sell the shares of a professional corporation.  From a taxation point of view, selling shares of your practice will allow you to utilize your capital gains exemption and shelter up to $850,000 of the realize gain upon the sale as opposed to selling the assets of your practice.

This can be achieved by:

  • Evaluating the goodwill and equipment and leasehold improvements of your dental practice;

  • Performing a tax-free rollover of the assets to your newly incorporated professional corporation on a tax deferred basis ;

  • Selling the shares of the dentistry professional corporation and accessing the lifetime capital gains exemption on the sale of the shares of a small business corporation.

 

CREATING THE CORPORATION

When incorporating a dental practice, it is necessary for your professional corporation to comply with the regulations of your order. For example, the name of the corporation needs to comply with specific rules, the business activities of the corporation need to be restricted and the share structure should provide for enough flexibility to accommodate future tax planning strategies.  If not well set-up, amendments can be quite costly to rectify any mistakes. Our experienced team at Meditax is quite knowledgeable on these matters and can help you properly set up your dental corporation in a timely manner.  We also take care of every step of the process including the filing of the requisite forms with the Ordre des Dentistes du Québec and obtaining their consent to practice through a corporation.

CONSIDERATIONS FOR THE PURCHASING DENTIST:

If a dentist has agreed to purchase the shares of a dental practice, it is recommended to make the purchase through your own corporation rather than buy the shares personally. A corporation can repay a loan at a faster rate than an individual since it earns more after-tax dollars.  A corporation pays tax at the corporate level at a rate of 19% whereas an individual dentist will pay tax his personal marginal tax rate which is generally much higher, up to 50%.  Therefore, it is much quicker to reimburse a loan when only paying tax at 19% rather than 50%.

PURCHASING ASSETS OF A DENTAL PRACTICE

While it is generally in the best interest of the vendor to sell the shares of their dentistry professional corporation, purchasers prefer acquiring the assets of the dental practice in order to avoid inheriting the liabilities of the dental practice (e.g. claims for employee wages, outstanding taxes or loans, potential lawsuits, etc.).  Although the corporation has new owners, they become responsible for the past liabilities.  There are numerous ways of mitigating such liability issues in a properly drafted share purchase agreement that can protect both parties in case of any future claims post-closing.

Buying or selling a dental practice can be structured in two ways: a share sale or an asset sale.  In other words, a dentist may choose to either buy the shares of a clinic that is incorporated or just buy the assets of the dental practice when the selling dentist has chosen not to incorporate. How the deal is structured is one of the most important factors to consider since the legal and tax consequences differ quite significantly.

PURCHASING SHARES OF A DENTAL PRACTICE

When a dentist is considering selling his dental practice in the near future, it is extremely beneficial to incorporate the dental practice prior to the sale in order to sell the shares of a professional corporation. From a taxation point of view, selling shares of your practice will allow you to utilize your capital gains exemption and shelter up to $850,000 of the realize gain upon the sale as opposed to selling the assets of your practice.

This can be achieved by:

  • Evaluating the goodwill and equipment and leasehold improvements of your dental practice;

  • Performing a tax-free rollover of the assets to your newly incorporated professional corporation on a tax deferred basis ;

  • Selling the shares of the dentistry professional corporation and accessing the lifetime capital gains exemption on the sale of the shares of a small business corporation.