When you work in the healthcare industry and want to set up your own practice, you might first be thinking about questions such as where to rent your office, the kind of layout you need, and what kinds of support staff may be required. But choosing a legal entity is also an important question, and before you even get started with all of that.
With a sole proprietorship, the business is under your name and no separate entity is created. This is the easiest form, however, it means that you are liable for all debts, and creditors can come after your personal assets. It also means that all income and deductions are filed under your personal tax return.
Another common business model for medical practice is a partnership. It’s similar to the sole proprietorship in that you are each liable for debts and the income goes on your personal taxes. An important point to keep in mind is that you are liable for the debts and actions of your partner with respect to the practice as well.
Many practitioners in the healthcare industry consider limited liability partnerships (LLP) as a way to limit their personal liability. For example, in the case of malpractice of a partner, only assets of the partnership can be touched. An LLC, or limited liability company, allows for distribution of profit and loss to partners in varying amounts, rather than equally. It also limits personal liability but is not available in all states.
The other types of entities are all types of corporations, and each has some benefits. The S corporation limits some of the liability, but in the case of taxes will be similar to a partnership. A C-corporation has shareholders who own the business, and a board of directors. It pays taxes as a separate entity. Shareholders are then taxed on their dividends.
Finally, there is a professional corporation, which is specifically made up of professionals who require a license to practice and typically must be approved by the applicable state board. It is also limited in scope to the profession of the shareholders.
There are pluses and minuses to all legal entities, so it’s a good idea to seek professional advice before getting starting. Since you’ll want any leases and purchases to be under that entity’s name, this is one of the first steps to creating your new healthcare industry practice in the way that best protects you and sets you up for a successful venture.