by Richard D. Weber, J.D.
MDA Legal Counsel
Published in the January 1995 issue of the Journal
Question: Can a non-dentist purchase a dental practice or otherwise be an owner or part-owner of a dental practice in Michigan?
Answer: The legal answer depends upon the business structure of the dental practice.
Any member of a learned profession, such as dentistry, who wishes to practice in a corporate structure, must do so pursuant to the Professional Service Corporation Act. Under that act, all shareholders of a health care professional corporation must be either licensed or legally authorized in this state to render the same professional service. Therefore, under Michigan law, a non-dentist may not be an owner of a dental practice structured as a professional corporation.
The new Michigan Limited Liability Company Act authorizes professionals to practice within that structure. Limited liability companies are taxed as partnerships but have liability protection attributes similar to corporations. The limited liability company is a relatively company is a relatively new business entity under Michigan law, and will become a popular form of practice for health care professionals. This act has similar language to the Professional Service Corporation Act. All members/owners of a health care professional limited liability company must be licensed or otherwise authorized to perform the same professional service. Therefore, under a limited liability company structure, a non-dentist could not be an owner.
Michigan has recently enacted amendments to the Partnership Act, creating yet another possible business form for professionals, a registered limited liability partnership. Limited liability partnerships are still taxed as partnerships, but have some liability protection. However, the liability protection is not as broad as that offered by the professional service corporation and limited liability company forms.
The Partnership Act, as amended, does not have the same restrictions on ownership. Moreover, common law partnerships do not have any such legal restrictions whereby all partners must be members of the same profession. Notwithstanding the fact that there is no law requiring that all partners of a health care partnership be members of the same profession, ethical and licensing implications may arise which may limit or prohibit such affiliations in the event non-dentists acted as partners with dentists.
Under Michigan law, nonprofit corporations may employ health care professionals to render services to the public, but this right is not granted within the structure of a for-profit corporation. Therefore, dentists or physicians could be employees of nonprofit hospitals or other such entities, but cannot be employees of for-profit corporations. This would preclude non-dentists from owning stock in a for-profit corporation and employing practicing dentists.
Professional corporations have been the most popular business entity for practicing dentistry. It is expected that limited liability companies will become equally as popular, in the future. This new entity provides the same liability protection as a professional corporation but is taxed as a partnership, which generally is considered to be more favorable.
Since these two entities exclude non-dentist ownership, the threat of such entrepreneurial activity is substantially diminished, if not practically eliminated.