Doc: global/org-structure.md

Executive Summary & Rationale

This is the executive-level narrative you can share with advisors, leadership, bankers, and future partners. It explains what the structure is and why it exists.

Summary of Group Structure & Rationale

Smile Group operates under a multi-entity structure to: (1) maintain dental compliance, (2) protect assets and isolate liability, (3) support scalable multi-office growth, and (4) optimize tax efficiency. The model follows sophisticated DSO patterns, separating clinical operations, management functions, and real estate into distinct entities with clear roles.

1) Clinical Entities (PAs) — Purpose & Rationale

  • One PA per practice location, 100% owned by the licensed dentist (Cecilia) for CPOD compliance.
  • Each PA holds its own EIN, NPI-2, fee schedules, credentialed providers, and payer contracts.
  • Owns office-specific equipment; employs clinical staff; collects revenue; retains clinical control.
  • Rationale: CPOD compliance, payer integrity, liability isolation, and clean scalability (new PA per new office).

2) Smile Group, Inc. (MSO – S Corporation) — Purpose & Rationale

  • MSO delivers all non-clinical support: HR, IT, marketing, billing admin, purchasing, ops, strategy.
  • Employs shared/central staff; owns shared equipment/IT; holds shared bank accounts (starting 1/1/2026).
  • Invoices PAs monthly under MSAs; can add non-clinical partners (within S-corp rules).
  • Rationale: centralization, scalable backbone for new offices, enterprise value creation, partner flexibility, and a tax lever via management fees.

3) Real Estate LLCs — Purpose & Rationale

  • Separate LLC per property to silo liability, enable cost seg/1031, and simplify financing.
  • PAs lease space via commercial leases; RE stays separate from clinical/ops risk.

4) Flow of Funds — Structure & Strategy

  • PAs collect all clinical revenue; pay clinical staff/expenses; then pay leases to RE LLCs and management fees to Smile Group.
  • Smile Group funds central staff, IT, marketing, purchasing, admin, and infrastructure.
  • Clean, auditable separation between clinical, management, and real estate activities.

5) Management Fee Strategy — Business Purpose & Tax Rationale

  • Fee set annually, formula-based (e.g., % of collections), varying by office maturity.
  • New/CapEx-heavy offices: lower fee to keep profit where depreciation is high.
  • Mature offices: higher fee to move profit into Smile Group and reflect centralized ops.
  • Compliant because it is prospective, formula-driven, and documented.

6) Depreciation & Asset Placement Strategy

  • Office-specific equipment → PA (uses §179/bonus to offset early profit).
  • Group-wide IT/shared systems → Smile Group (strengthens MSO substance; some depreciation at MSO).
  • Buildings/improvements → RE LLCs (cost seg, 1031). Keeps real estate a long-term tax/wealth lever.
  • Goal: reinvest pre-tax dollars during growth while staying within regulatory lines.

7) Compliance Principles

  • Clinical autonomy stays with PAs; MSO does not influence clinical care or billing.
  • Insurance billing only through PAs; employees mapped to the correct entity.
  • Leases/MSAs/intercompany charges are real and documented.
  • Depreciation and fee adjustments follow consistent, policy-driven rules.

8) Strategic Outcomes

  • Operational: standardized systems, clean onboarding, clear accountability, scalable footprint.
  • Financial: predictable cashflow, legible intercompanys, efficient use of depreciation, RE wealth building.
  • Risk: liability siloed, clinical vs non-clinical boundary intact, easier audits/lender reviews.
  • Strategic: Smile Group becomes the equity engine; partners can join at MSO; lender/acquirer friendly; ready for 10+ offices.

Group Structure (Draft)

High-level outline covering PAs, MSO (Smile Group S-corp), real estate entities, flow of funds, compliance, tax, and growth.

1. Purpose of This Document

  • Define the legal, operational, and financial structure of Smile Group and affiliated clinical and real estate entities.
  • Establish clear boundaries between: clinical entities (PAs), MSO (Smile Group S-corp), and real estate holding entities.
  • Create a scalable framework for expansion, partner onboarding, compliance, tax-efficient ops, and asset management.

2. Entity Overview

2.1 Smile Group Inc. (MSO – S Corporation)

  • Non-clinical management company; provides admin/ops/IT/HR/finance/purchasing/marketing/strategy.
  • Employs shared staff (central team, call center, marketing, ops leaders, IT).
  • Owns shared infra and group-level equipment/software; primary shared bank accounts starting 1/1/2026.
  • Bills PAs monthly under MSAs; may admit non-clinical partners in future (subject to S-corp rules).

2.2 Clinical Entities (Professional Associations – PAs)

  • One PA per practice location; 100% owned by Cecilia (licensed dentist) to satisfy CPOD.
  • Each PA holds its own EIN, NPI-2, insurance contracts; employs clinical staff at that office.
  • Bills carriers/patients directly; may own practice-specific equipment.

2.3 Real Estate Entities (LLCs)

  • One LLC per building/parcel to ring-fence liability, enable 1031, support depreciation, simplify financing.
  • Leases space to PAs under standard commercial leases.

2.4 Entity Table

See Entity Table

for complete listing of all active entities (PAs, MSO, RE) with EINs, NPIs, addresses, and lease relationships.

2.5 Entity Relationship Diagram

Visual map of MSO → PAs (services/fees) and PAs → RE LLCs (leases).

View diagram: org-structure.mmd

3. Operating & Financial Structure

3.1 Flow of Funds

  1. PAs collect revenue (insurance + patient pay).
  2. PAs pay clinical expenses and payroll.
  3. PAs pay leases to RE LLCs and monthly management fees to Smile Group.
  4. Smile Group pays central payroll, vendors, tech, marketing, overhead.
  5. RE LLCs pay mortgage, property taxes, insurance, maintenance.

3.2 Management Fee Structure

  • % of monthly collections (typ. 6–12%), tuned by office maturity (lower for startup/CapEx years, higher for mature).
  • Annual/quarterly true-ups allowed under MSA; document rationale for arm’s-length defensibility.

4. Asset Ownership Model

4.1 Equipment

  • Office-specific equipment owned by the PA; group/shared equipment can be owned by Smile Group.
  • Ownership drives where depreciation lives for tax planning.

4.2 Real Estate & Improvements

  • RE LLC owns building/land; leases to PA.
  • Buildout/renovations: cost seg where appropriate.

4.3 IT, Software, Subscriptions

  • Centralized procurement via Smile Group; allocated via management fees or pass-throughs.

5. Employment & HR Structure

5.1 Smile Group Employees

  • Regional managers, marketing, IT, admin/central billing, call center, ops leadership, any cross-office staff.

5.2 PA Employees

  • Hygienists, assistants, office-specific admin, clinical providers; floating staff handled per PA (W-2 or carefully structured 1099).

5.3 Payroll

  • Processed at PA level; funded via Smile Group payroll funding account (without making Smile Group the employer).

6. Regulatory & Compliance Framework

6.1 Corporate Practice of Dentistry (CPOD)

  • Smile Group provides non-clinical services only; PAs retain clinical control (providers, treatment plans, clinical guidelines, credentialing).

6.2 Insurance Contracts

  • Each PA maintains its own contracts, fee schedules, enrollment credentials, NPI-2, and EIN.

6.3 Clinical Records

  • Owned by PAs; Smile Group may host/admin systems but cannot assert ownership/clinical control.

7. Tax Planning & Depreciation Strategy

7.1 Depreciation Allocation

  • §179/bonus used strategically across PAs and RE entities; group-level assets may sit in Smile Group.
  • Q4 tax planning aligns CapEx schedule, fee structure, project timing, asset placement.

7.2 Management Fee Tuning

  • Adjust annually (not monthly) to balance depreciation absorption, move mature profit to Smile Group, and keep defensible/consistent.

7.3 Real Estate Tax Planning

  • 1031 exchanges to defer gains; cost seg to accelerate depreciation; leases preserve clinical separation.

8. Expansion Model

8.1 New Offices

  • Form new PA; extend MSO services under new MSA; Smile Group handles setup, credentialing, equipment, IT.

8.2 Acquisitions

  • Prefer asset purchases for depreciation reset and liability protection; allocate assets to maximize tax benefits (equipment to PA, improvements to RE LLC).

8.3 Ongoing Framework

  • Each office maps to one PA + one RE LLC + Smile Group MSO support.

9. Governance & Ownership

9.1 Dentist Ownership (Cecilia)

  • Sole owner of clinical PAs; retains clinical authority.

9.2 Smile Group Ownership

  • Owned by Andrew & Cecilia (and future partners); houses enterprise value and strategic leadership; potential equity for non-clinical execs/investors (subject to S-corp rules).

9.3 Real Estate Ownership

  • Separate LLCs; owned by individuals or holding LLCs.

10. Reporting & Accounting Framework

  • Monthly financials by entity; consolidated internal dashboard.
  • Allocations documented in MSAs; standardized intercompany accounting.
  • Year-end tax planning meeting to adjust next year’s fee structure, CapEx timing, asset placement.

TODO / Next

  • Insert latest entity diagram in diagrams/ (Mermaid/Draw.io).
  • Entity table added above; add missing columns (state, purpose, ownership, bank refs) and keep in sync.
  • Add office-to-entity mapping and MSA/lease references.
  • Note compliance requirements per entity/state; link to policies.