Legal
We find this topic a bit dry - hence we didn't become lawyers. However, you need iron-clad contracts, so find yourselves some good lawyers. If you're really short on cash, you can also find links to do-it-yourself contracts below.
- Kirschenbaum & Kirschenbaum specializes in all contract types from employment to surgery centers to partnerships, disputes, licensure problems, insurance carrier audits, personal matters like wills and trusts, etc
- LegalZoom has a slew of do-it-yourself legal documents for small businesses. Complete a questionnaire for documents to form your business entity. Use a similar process to trademark a business name, among other tasks.
Incorporation:
The main reason for incorporation is limited liability, which means if you're sued, only the assets held by the company are subject to any risk. Without incorporating, you've opened up your personal assets to the threat of a lawsuit.
A new medical practice may opt for any one of several legal organizations. In general, a medical practice may be a sole proprietorship, a partnership (general or limited), a corporation, a limited liability company (LLC), or a limited liability partnership (LLP). It is important to review each of these options with tax and legal advisors as requirements from state to state differs.
Sole proprietorship: This is best for an individual; no entity is created. The individual owner reports the income and pays income tax. This choice is simple and inexpensive. With a sole proprietorship, one person is responsible for all a company's profits and debts.
Partnership: This entity is owned by two or more individuals. There are two types: a general partnership, where all is shared equally; and a limited partnership, where only one partner has control of its operation while the other person (or persons) contributes to and receives part of the profits. Partnerships carry a dual status as a sole proprietorship or limited liability partnership (LLP), depending on the entity's funding and liability structure.
Professional corporation (P.C.): A corporation in which one or more shareholders must be licensed professionals. The law regards a corporation as an entity separate from its owners. It has its own legal rights, independent of its owners – it can sue, be sued, own and sell property, and sell the rights of ownership in the form of stocks. S corporations were designed for small businesses. A S corporation doesn’t pay tax. The owners report their company revenue as personal income.
Professional limited liability company (pLLC):
A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying the tax and flexibility benefits of a partnership.
A pLLC is an LLC in which one or more members must be licensed professionals or entities that are wholly owned by licensed professionals. This can be taxed as a partnership or a corporation.
Limited liability partnership (LLP): This is comprised of two or more partners; it provides a general liability shield for all of the partners.
Tax structures: C-corporation vs. S-corporation
The major difference between C and S corporations comes down to taxes. C corporations are taxed on their income in addition to income received as an owner or an employee.
