Making it on the side

Our office routinely has professional interaction with accountants and accounting firms across the country. As a result, it has been my pleasure to become professionally and often personally acquainted with numerous accountants, both certified and otherwise, who handle an extensive amount of work for veterinarians.

During our discussions, I sometimes like to get input from these accounting professionals on financial trends for veterinarians in general. For example, it is always interesting to me to get a sense of what habits the more financially prosperous veterinarians have versus the habits of the doctors who might not be (at least in an economic sense) living up to their potential.

One of the things that I often hear, from both accountants and other attorneys who deal with veterinarians, is that many of the more economically successful practitioners tend to pursue ventures outside of the traditional realm of veterinary practice. For example, a doctor who is employed as a full-time practitioner at a private practice might also own rental real-estate in order to augment his or her income.

Some veterinarians obtain real-estate broker's licenses and practice veterinary medicine while overseeing licensed sales agents in their spare time. Accountants also tell me that, as is the case with many physicians and dentists, franchise ownership is popular with a number of their more affluent veterinarian clients. I even know of some veterinarians who have become licensed electricians or plumbers and simultaneously doctor animals while hiring others to patch up distressed buildings.

Incidentally, though the SEC probably doesn't require this disclosure: Yours truly owns a car storage facility.

So, a hearty salute to those of us who spend a little extra time running or managing a side business when we are not dosing, diagnosing or anastomosing.

According to my unscientific research, there are many of us out there. I would like to offer some often-overlooked legal caveats that can be helpful when a professional undertakes a side enterprise.

Personal liability protection

Even seasoned entrepreneurs sometimes neglect to brainstorm the potential downside of a new or existing side business. For example, rental real-estate may become a serious problem if a tenant or invitee is injured. When a lawsuit is initiated, the recovery demand may be well in excess of the building owner's insurance policy limits. If the rental is titled in the name of the doctor/owner or one of his family members, the personal assets of that owner may well be available to satisfy any judgment that a tenant or others obtain in court.

Business liability

A related problem can exist for veterinarians who own multiple outside businesses.

Even if the doctor is savvy enough to title the business away from his or her own name or the name of a family member, one business can suffer for problems that ensue at another. For example, let's say Doctor A owns a small strip mall where his practice is located. He also rents out two other places there, one to an independent dry cleaner and one to a deli that is owned by the same corporation that owns the shopping center.

If a patron of the dry cleaner is injured when she trips on a piece of loose sidewalk at the strip mall, she may sue the dry cleaner and join the strip mall corporation as a party to the suit. A successful court judgment could nail all of the assets of the strip mall company.

And, if one of those corporate assets happens to be the deli business, it too is potentially vulnerable.

Tip: Consider what some New York City taxicab companies do. If they have 10 taxicabs, they may have 10 corporations. The goal is to make it so that if one cab has a catastrophic accident, liability is limited to the face value of the insurance policy plus the value of a single yellow 1998 Impala.

Business entity selection

Some lawyers, particularly if they are not experienced in business or estate planning law, fail to look forward in considering which business entity might be best for organizing a veterinarian's side business(es). Entity selection is critical for a number of reasons and should be given more than passing consideration at the outset of the enterprise. Permit me one more example:

Doctor B has decided to buy, over time, a car wash, a frame store and a bagel franchise. His plan: If his three kids don't want to be veterinarians but also wish to be free of the shackles of corporate America, they can always operate one or more of these small businesses.

Lawyer C haphazardly selects a Subchapter S business entity for the three side activities. Ten years later, the doctor decides to retire from being a veterinary practitioner and live off the income from the side businesses. Shortly, all three (non-vet) kids decide they want in. Doc wishes to keep the income stream for the subsequent 10 years but give operational control to kid #1. Kids #2 and #3 are living out of town but also want some of the income stream after dad is out of the picture.

Lawyer C is now retired and Accountant D looks over the problem. What to do now? Subchapter S corporations do not permit the numerous classes of stock needed to accomplish Doctor B's goals. Reorganizing to a "C" corporation or a limited liability company might generate numerous fees and tax problems now that the side businesses are thriving.

For my readers, this suggestion: Think ahead; don't be an ERV (Entity Regret Vet).

Dr. Allen is president of the Associates in Veterinary Law P.C., which provides legal and consulting services exclusively to veterinarians. He may be contacted at (607) 754-1510 or info@veterinarylaw.com.