Starting or reorganizing a medical practice comes with many decisions, but few are as important as choosing the right business structure. Your choice affects taxes, liability, ownership, and how easily your practice can grow. The best structure depends on your goals, the number of physicians involved, and how you plan to manage risk and income.
Let’s look at the main options used by medical professionals in the United States.
Common Business Structures for Medical Practices
Medical practices come in all sizes, from solo docs to big groups. The structure you choose sets the foundation. Here are the most common ones, with their upsides and downsides.
· Sole Proprietorship
A sole proprietorship medical practice is the easiest structure to start. You handle everything yourself, and all earnings flow directly to your personal tax return. It’s inexpensive, simple to run, and gives you total control over decisions like scheduling, spending, and patient care without corporate restrictions or complex paperwork.
The drawback is personal liability. If your practice faces debt or a lawsuit, your own assets could be at risk. You also pay full self-employment taxes on all profits. This setup works best for solo physicians or small, low-risk practices that value independence over protection.
· Partnership
A medical practice partnership brings two or more doctors together to share ownership, profits, and responsibilities. It’s a flexible setup that allows for shared resources, lower costs, and combined expertise, helping partners serve more patients and manage workloads efficiently without facing double taxation on business income.
The challenge lies in managing relationships and liability. General partners are personally responsible for the group’s debts or errors, which can be risky in medicine. A limited partnership reduces that exposure but adds complexity. It’s a good option for small, trusted teams who want collaboration and shared control.
· Limited Liability Company (LLC)
An LLC offers a nice middle ground for many medical practices. It gives you liability protection, meaning your personal stuff stays safe from business debts or lawsuits. In some states, doctors must form a professional LLC, or PLLC, to meet licensing rules.
Pros include flexibility in how you manage things and distribute profits. Taxes usually pass through to your personal return, keeping it simple. The setup involves filing articles with the state and paying some fees, but it’s not overwhelming.
Cons are ongoing state fees and reports in some places. If you’re solo, it might feel like overkill compared to a sole prop. Still, for growing practices, this structure provides peace of mind without too much red tape.
· Professional Corporation (PC)
A professional corporation, or PC, is designed for licensed pros like doctors. It must follow state rules, often limiting ownership to fellow physicians. You can run it as a small group or a larger entity.
Benefits include strong liability shields, protecting personal assets, and limiting responsibility for others’ errors in the practice. It adds credibility, which helps with loans or contracts. Taxes can vary, but you often elect pass-through status.
Drawbacks are more formalities, like board meetings and records. Setting up costs more, and compliance takes time. This fits established practices that need a solid, professional image.
· S Corporation and C Corporation
S Corps and C Corps are corporate options with tax twists. An S Corp lets profits pass through to owners’ taxes, avoiding corporate-level hits. It’s popular for medical practice tax planning because you can pay yourself a salary and take distributions, cutting self-employment taxes.
- Pros for S Corps: Tax savings for higher earners, plus liability protection. You need to meet IRS rules, like having no more than 100 US owners.
- Pros for C Corps: C Corps tax the business separately, then owners pay on dividends, leading to double taxation. But they allow unlimited owners and easier fundraising. Pros include fringe benefits and scalability for big operations.
- Cons for both: More paperwork and restrictions. S Corps suits mid-size practices; C Corps fit large ones eyeing investors.
Key Factors to Consider When Choosing
Now that we’ve covered the options, let’s talk about what really matters in picking one. Your choice depends on your situation.
· Liability Protection
Medicine involves risks, like malpractice suits. Structures like LLCs, PCs, or corporations protect your personal assets. Sole proprietorships and general partnerships leave you exposed. If patient care is your focus, prioritize protection to sleep better at night.
· Tax Implications
Taxes can eat into your earnings big time. Pass-through entities, like LLCs or S Corps, let income flow to your personal return, often saving money. C Corps face double taxation but offer deductions. Factor in medical practice tax planning early, maybe with a CPA, to minimize what you owe.
· Management and Flexibility
How do you want to run things? Sole proprietorships and LLCs give you freedom without meetings. Partnerships and corps require agreements and structure. If you plan to add staff or partners, go for something flexible.
· Growth and Scalability
Think ahead. A solo setup might not handle expansion. For a medical group business structure, consider a corporation or LLC that allows multiple owners. If you’re thinking about selling your medical practice down the line, a structured entity makes transitions smoother and more appealing to buyers. Get in touch with Strategic Medical Brokers to learn more!
· State Regulations
Some require PCs or PLLCs for doctors; others ban certain structures. Check your state’s secretary of state site or talk to a lawyer to avoid issues.
Which Structure is Best for Your Practice?
So, what’s the “best” one? It depends on your particular circumstances. For individual practitioners, establishing a sole proprietorship or an LLC offers simplicity along with some degree of protection. Small groups frequently benefit from a medical practice partnership or PLLC for collaboration and legal safeguards.
Mid-size practices benefit from S Corp taxation on an LLC or PC basis, balancing taxes and growth. Large groups might lean toward C Corps for investment potential. Many experts point to LLCs with S Corp election as a sweet spot for tax savings and flexibility. But run numbers for your income and state. No one-size-fits-all here.
The right structure aligns with your goals, risks, and plans. Take time to assess and consult pros to set up a strong plan. Contact Strategic Medical Brokers today for expert guidance on structuring your practice or navigating healthcare business valuation!
