When Should Physicians Incorporate?

 

A physician LLC can establish your medical practice as a separate business entity, which has significant implications and benefits.

In this article, we will explore:

• when physicians should consider incorporating;
• the financial and legal factors you need to weigh;
• and how to go about the process of incorporation.

We will also delve into some LLC alternatives you might consider and their associated tax implications.

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When Should Physicians Incorporate?

There are three big things to consider before you decide to incorporate your business:

• Financial considerations (i.e., debt and expenses)
• Legal and liability factors
• Your future plans

Let’s discuss why each of these factors is crucial to your decision.

Financial Considerations

One of the main reasons physicians incorporate is the financial benefits. Incorporation can offer tax advantages that may reduce the overall tax burden on your business’s profits. This can be especially appealing to high-earners who pay large amounts in taxes.

Physician LLCs and other corporate structures can act as a barrier between your personal and professional assets. This separation can be a lifeline when facing lawsuits or outstanding debts.

For instance, if there’s a lawsuit against you for personal actions, your medical practice’s assets are protected.

On the downside, incorporation does not protect your business from malpractice claims (which is why you always need malpractice insurance). It doesn’t protect your business from liability claims in case of an accident or injury that occurs on company property, either.

Therefore, you should weigh the potential benefits of incorporation against the time, cost, and effort involved in the process.

Legal and Liability Factors

Reduced liability is a significant factor that motivates physicians to incorporate. By transitioning from a sole proprietorship to an LLC, you can safeguard your personal assets from liability in a professional lawsuit and vice versa.

This protection extends not only to the business entity but also to liabilities stemming from the actions of other physicians in your practice (making incorporation highly advisable for practices with multiple physicians).

However, incorporating multiple physicians involves a lot of work and strict compliance with your state’s laws. The process can be complex, so you should be prepared to navigate this process before deciding to incorporate.

Future Plans

You should also take into account your future plans when considering incorporation. The decision should align with your long-term goals.

As the number of partners in your practice increases and your business expands, consulting an attorney and/or accountant becomes a valuable step in determining which type of corporation offers the most legal and financial protection.

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How to Incorporate as a Physician

The incorporation process involves several big steps, including:

• Fulfilling legal requirements
• Financial planning
• Hiring professional assistance

Let’s discuss what each of these steps entails:

Fulfilling Legal Requirements

Incorporating a medical practice involves adhering to specific legal requirements, which may vary depending on your chosen corporate structure and the state where your practice.

You should yourself with your state’s legal obligations or hire legal counsel to ensure full compliance.

Financial Planning

You must should assess your financial goals for the practice and choose a corporate structure that aligns with those objectives.

Whether you’re seeking tax advantages or another benefit, financial planning is essential for the success of a physician LLC (and other types of corporate structures).

Hiring Professionals (Attorneys, Accountants, etc)

Incorporation can be a complex and legally intricate process. It’s much easier with the right people in your corner.

Consider enlisting the services of attorneys and accountants who specialize in healthcare and corporate law. These experts can guide you through the incorporation process, ensuring legal compliance and financial soundness.

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Should Physicians Incorporate as an LLC, S-Corp, or C-Corp?

A physician LLC is only one of your options when it comes to choosing a corporate structure. Let’s compare it to some other popular options.

Limited Liability Companies (LLC)

A simple LLC provides a separate business entity that passes company profits and losses through to the LLC members.

This structure is appealing for its simplicity, although some states may not permit physicians to organize as LLCs, requiring them to opt for professional corporations instead.

S-Corporations (S-Corp)

If you have an LLC, you can elect to be taxed as an S-Corp. This choice allows for the distribution of income in the form of dividends to company shareholders, leading to tax savings.

However, it comes with specific requirements and scrutiny by the IRS, making it essential to maintain “reasonable compensation” for services rendered.

C-Corporations (C-Corp)

Unlike LLCs and S-Corps, C-Corporations are not pass-through entities, and their profits are subject to corporate tax rates.

You might consider a C-Corporation if you intend to reinvest a substantial portion of profits into your practice for future expenses or expansion.

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Conclusion

Ultimately, the choice of when and how to incorporate depends on your individual circumstances and business goals.

Physicians Thrive can help you navigate the intricacies of incorporation, offering support in legal and financial planning.

If you are considering incorporation, it is essential to have the right guidance to make an informed decision that aligns with your practice’s needs and future aspirations.

Wondering if incorporation could benefit your medical practice? Talk with a Physicians Thrive advisor today.