What is a Medical Corporation? Explaining the Pros and Cons of Incorporation from the Perspective of Medical Institution Management
As you take on the responsibility of management while focusing on clinical practice as a doctor, the time comes to consider whether it is time to incorporate as a medical corporation.
Especially for doctors in private practice or those running individual clinics, establishing a medical corporation is a significant turning point.
In this article, I have organized from a practical perspective what a medical corporation is, its structure, and the pros and cons of establishing one. I hope this serves as a reference for those considering incorporation.
What is a Medical Corporation? — A "Non-Profit Corporation" Not for Profit
First, as a premise, a medical corporation is not a corporation intended to distribute profits like a joint-stock company.
It is a corporate form intended solely for the continuous provision of "non-profit" medical care.
Establishment requires approval from the prefectural governor, and the facilities that can be opened are limited to hospitals, clinics, and long-term care health facilities.
In other words, it is a highly public legal entity that cannot be used merely as a tax-saving scheme or for investment purposes.
Main Benefits of Establishing a Medical Corporation
1. Potential for Tax Savings
The income tax for sole proprietors can be taxed at rates as high as nearly 55% due to the progressive tax system. On the other hand, by becoming a medical corporation, the corporate tax rate (approximately 23.2%) becomes applicable.
Also, income splitting by paying executive compensation to family members and tax deductions through the payment of retirement benefits become possible.
2. Easier Business Succession
By becoming a medical corporation, it becomes possible to change the board chair or transfer equity interests while maintaining the legal entity itself.
In a private clinic, the medical institution itself ceases to exist when the director retires, but with a corporation, a smooth succession while maintaining the clinical and staffing structure is a major advantage.
Furthermore, for those who think, "I want someone to take over someday," utilizing a business succession support service specialized for medical institutions, [ Medical Business Succession Support ], is one option. A specialized team provides consistent support from finding a successor to handling contract procedures.
3. Improved Fundraising and External Credibility
By being a corporation, credibility with financial institutions increases, and there are many cases where negotiations for loans and the like proceed more favorably.
Also, in recruitment activities, a medical corporation is more likely to be viewed as a stable organization.
Demerits and Points of Caution for Medical Incorporation
1. Restrictions on the Free Use of Profits
Corporate profits cannot be used at an individual's discretion.
For example, the board chair cannot freely withdraw corporate money and can only receive it in the form of executive compensation or dividends. While there are tax-saving effects, it is necessary to be aware that the flexibility of cash flow decreases.
2. Strict Rules for Asset Disposal Upon Dissolution
In medical corporations without equity interests (non-equity type), it is mandatory to donate remaining assets to the national or local government upon dissolution.
Therefore, it is difficult to use them for purposes such as "selling in the future to fund retirement".
3. Increased Burden of Accounting and Operational Management
Once incorporated, accounting and tax filing become more complex.
Furthermore, procedures such as holding board meetings, registration, and administrative reporting are also required, so there will be more situations where support from experts becomes essential.
A medical corporation is an option for "continuing medical care as a business"
A medical corporation is not merely a tax-saving measure, but a "vessel for making the provision of medical care sustainable as a business." Especially for doctors who wish to continue practicing in their community for a long time or those who are considering passing the baton to a successor,
building an organizational foundation through incorporation leads to future stability.
On the other hand, establishment involves time, effort, and restrictions, so starting it just because it "seems somewhat advantageous" can lead to regret. As you review your own career design and business strategy,
we recommend that you carefully judge whether incorporation is truly necessary with the help of an expert.