What Is the Best Business Structure for Your Practice?

What Is the Best Business Structure for Your Practice By Stephanie Rodin{Time to read 3:40 minutes} Once a person decides to establish a business, there are several different types of organizations he or she may form, each with its own tax implications. Some other factors to take into account include the legal liability associated with the business formation and the cost of getting started.

When making such an important decision, some questions to consider are: As a healthcare provider, what type of entity can I form? How many members/partners will be associated with the entity? What are the potential liabilities? How will the entity be taxed? What are the state requirements for the entity?

Partnership

  • Two or more individuals
  • Partnership agreement spells out how the business will be handled, including:
    • what role each partner will play
    • what the business is about
    • number of employees
    • everything about the running of the business
  • Very easy to establish
  • Easier to get financing through a bank than a sole proprietor
  • Partners share in both the profits and losses and determine the percentage of how that share is divided

Some of the potential problems that a partnership may face include being exposed to unlimited liability for business expenses, which includes personal assets. Another negative is that partnerships can be very difficult to end. Also, the loss of one partner, if there are only two partners in the business, will dissolve the partnership.

Professional Corporation (PC)

  • Owners are generally required to be licensed in the same profession
  • Corporate shield: personal assets are protected
  • All the shareholders will be held liable to their patients
  • May be taxed at the corporate rate, which can lead to double taxation

A downside to a PC is the way it is treated for tax purposes, which can have a significant impact on the shareholders.

Professional Limited Liability Company (PLLC/ LLC)

  • Corporate shield: personal assets are protected, and legal liability is limited
  • Easy to manage, more flexibility
  • Profits and losses pass through the entity to the owner(s), so there’s no dual taxation
  • No limitation on the number of members/partners

There can be a single-member PLLC or there can be multiple members. Therefore, if there are two members in the PLLC, and one of them decides to leave, it can still be in existence with a single member. It does not have to be dissolved, contrary to a regular partnership.

Instead of a partnership agreement, an operating agreement is required to clearly indicate how the practice will operate. Some factors are: how the practice will be managed, how new members can join, how an existing member can withdraw, or more importantly, what happens in the event of the death of one of the members. The operating agreement will instruct the members on how the entity will continue, even after the occurrence of these events and more.

Determining what business structure is right for a company requires a lot of thought and careful planning. Contact our office today, and allow us to assist you in making a solid decision.

STEPHANIE J. RODIN, ESQ.Stephanie J. Rodin, Esq.
Rodin Legal, P.C.
Email: info@rodinlegal.com
Tel: (917) 345-8972
Fax: (917) 591-4428

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