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What Type of Business Entity is Best for Your Practice?

When acquiring an existing healthcare practice or establishing a new one, choosing the appropriate business entity is a crucial decision that can impact your operations, liability, and taxes. The type of business entity determines your healthcare practice’s financial structure, influencing everything from day-to-day management to long-term growth and sustainability.

Understanding what type of business entity is best for your practice will help you make an informed decision that aligns with your professional goals and financial considerations. Consulting with an experienced healthcare practice attorney can guide you through the various options and help you choose the structure that best fits your business vision.

Below is a comprehensive overview of the most common types of business entities for healthcare practices.

Common Types of Business Entities

Sole Proprietorship

Pros

Cons

  • Complete control by the owner
  • Unlimited personal liability (owners are personally responsible for business debts and obligations)
  • Easy to establish and maintain
  • Business is not separate from the owner
  • Minimal regulatory requirements
 

In a sole proprietorship, a single individual owns and operates the business. In other words, there is no legal distinction between the owner and the business. This structure is often used by individual healthcare practitioners like physicians, dentists, or therapists who run their own private practices.

Partnership

Pros

Cons

  • Shared financial commitment
  • Unlimited liability for general partners
  • Pooled resources and skills
  • Shared profits

This healthcare business entity is collaboratively owned by two or more individuals who share the business. For example, two physicians might form a partnership to share resources, profits, and liabilities. This allows them to combine their specialties and contribute to decision-making processes together. An independent physical may also decide to form a partnership with a hospital to gain access to additional resources, technology, and a broader patient base.

There are two types of partnerships: General and Limited. In a General Partnership (GP), the management and liabilities are shared by all partners. In a Limited Partnership (LP), the business is shared by the general partners with unlimited liability who manage the business and limited partners with limited liability.

Limited Liability Company (LLC)

Pros

Cons

  • Limited liability protection for members
  • State-specific regulations and fees
  • Flexible management structure
  • High tax liabilities
  • Growth potential
 

According to the Franchise Tax Board, an LLC combines the flexibility of a partnership with the limited liability protection of a corporation. It allows owners (or members) to benefit from pass-through taxation while providing limited liability for their personal assets. With an LLC, you can run a business or hold assets, providing a versatile option for various professional needs.

Limited Liability Partnership (LLP)

Pros

Cons

  • Limited liability for partners
  • More expensive to establish than a sole proprietorship or partnership
  • Flexible management structure
  • Regulations vary by state
  • Profits taxed only once
 

A Limited Liability Partnership (LLP) is a partnership structure where each partner is protected from personal liability for certain obligations of the partnership. LLPs typically promote a collaborative approach to business management and are subject to state-specific regulations and professional licensing requirements.

Healthcare provider contract

Difference Between LLC and LLP in California

What’s the difference between LLC and LLP, you may ask? While an LLC is a flexible business entity that can be owned by individuals, corporations, or other entities, an LLP is formed by partners who actively manage the business. LLCs provide limited liability protection to their members, and LLPs provide limited liability protection to their partners.

LLC and LLP advantages and disadvantages have similarities, too. They both are required to abide by state regulations and they both possess flexible management structures.

Corporation

Pros

Cons

  • Protects owners’ personal assets from business debts and liabilities
  • Increased regulatory requirements and taxation
  • Access to Capital
 

A corporation is a legal entity separate from its owners, or shareholders. As a corporation, healthcare entities can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes. Shareholders are not personally liable for debts and liabilities.

Professional Corporation (PC) or Professional Limited Liability Company (PLLC)

Pros

Cons

  • Limited liability for owners
  • Limited to licensed professionals
  • Formal business structure enhances credibility of practice
  • Specific regulations and licensing requirements
  • Tax flexibility
 

A Professional Corporation (PC) or Professional Limited Liability Company (PLLC) is a business structure specifically designed for licensed professionals like doctors, lawyers, and accountants. These structures provide limited liability protection while allowing healthcare professionals to offer their services more formally.

Speak to a Healthcare Practice Attorney

Fenton Jurkowitz Law Group has a team of seasoned healthcare law lawyers who can help you determine which type of business entity is best for your practice. We don’t just give legal advice — we help you arrive at solutions quickly and effectively while recognizing the importance of maintaining operational continuity and complying with healthcare regulations. Fill out our contact form on our website to connect with a healthcare practice attorney today.