Many dental practices are organized as service corporations. But what, exactly, is a service corporation, and what legal requirements apply to it? The following article provides answers to some frequently asked questions.
What is a service corporation?
In Wisconsin, a service corporation is a special type of corporation created for the purpose of carrying on a calling, trade or profession, such as dentistry, for which a license, certificate or registration is required.
If a dentist organizes his or her practice as a service corporation, will this protect the dentist from personal liability for malpractice?
No. Under Wisconsin law, organizing a dental practice as a service corporation will not protect a dentist from personal liability for the dentist’s own omissions, negligence, wrongful acts, misconduct or malpractice, nor will it protect the dentist from personal liability for the omissions, negligence, wrongful acts, misconduct or malpractice of any person acting under that dentist’s actual supervision and control. Organizing a dental practice as a service corporation will, however, protect the dentist from liability for the malpractice of other dentists and employees of the practice who are not under his or her actual supervision and control. It will also protect the dentist from some of the debt and contractual liability related to the dental practice. For example, if a dentist’s service corporation, rather than the dentist, signs a lease for office space, the landlord will be able to sue the service corporation, but not the dentist, for a default under that lease. Note, however, that if the dentist also signs a personal guarantee of that lease, in his or her own name, the dentist, and not just the service corporation, may be sued in the event of a lease default.
Many service corporations have the letters “S.C.” at the end their names. Is this a requirement?
Including the letters “S.C.” at the end of the name of a service corporation is one of several ways to satisfy the corporate name requirements of the Wisconsin Statutes. In Wisconsin, the name of a service corporation must end with: (1) the word “chartered” or “limited;” (2) the words “service corporation;” or (3) the abbreviation “ltd.” or “S.C.”
In Wisconsin, all of the shareholders of a service corporation must be natural persons (as opposed to corporations, limited liability companies and similar entities), and, except in the case of certified public accounting firms: (1) each shareholder of the corporation must be licensed, certified or registered, under the Wisconsin statutes, to carry on the same profession, calling or trade; or (2) all of the shareholders must be “health care professionals,” as defined in Section 180.1901(1m) of the Wisconsin Statutes. For example, all of the shareholders could hold Wisconsin law licenses or all of the shareholders could be licensed to practice dentistry in Wisconsin, but one shareholder could not be a Wisconsin lawyer if the other shareholder was a Wisconsin dentist.
Can a service corporation have only one shareholder?
Yes. Under Wisconsin law, a service corporation can have only one shareholder.
No. A service corporation must be organized for the purpose of carrying on the particular profession, calling or trade in which its shareholders are licensed, certified or registered and may not engage in any other business. For example, if a service corporation is organized to practice dentistry, the corporation cannot also engage in the business of operating a restaurant.
Who may serve as a director of a service corporation?
Each director of a service corporation must hold the same license, certification or registration as the shareholders of that corporation or both the shareholders and the directors must be “health care professionals,” as defined in Section 180.1901(1m) of the Wisconsin Statutes. For example, if the shareholders hold law licenses, the directors must also hold law licenses. If the shareholders are “health care professionals,” the directors must also be “health care professionals.” Special rules apply in the case of service corporations with only one or two shareholders. If there is only one shareholder, only one director is required, but that one director must be the shareholder. Similarly, if there are only two shareholders, only two directors are required, but those two directors must be the two shareholders.
Who may serve as an officer of a service corporation?
In Wisconsin, all officers of a service corporation must hold the same license, certification or registration as the shareholders or the shareholders and the officers must all be “health care professionals.” There are, however, exceptions to this rule for service corporations with only one or two shareholders. If a service corporation has only one shareholder, that shareholder must serve as both president and treasurer of the service corporation, but the corporation may have other officers who do not hold the same license, certification or registration as the president. If a service corporation has only two shareholders, those two shareholders, between them, must hold all of the offices of the service corporation.
This article was written by Janice L. Gauthier, Esq. Ms. Gauthier has an A.B. from Harvard University and a J.D. from Harvard Law School. She is the owner of The Gauthier Law Group, LLC, a boutique law firm that represents dentists, physicians, health care providers, professional service practices and other businesses and business owners in Wisconsin and Illinois. You can contact Ms. Gauthier at 414-270-3857 or by email. To learn more about Ms. Gauthier’s background and experience, visit her Google or LinkedIn profiles.
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