The structure you choose for your business depends on how big your practice will be, how many people will have ownership in your practice and certain legal and tax considerations. Each different business structure has advantages and disadvantages. Learn about the different business structures and see which one is the best fit for your business.
One of the many decisions you have to make when starting a business is the kind of business structure you will have. Most therapists run their private practice as a sole proprietorship but you may decide to run your business as a Limited Liability Company, Partnership, Corporation or S Corporation.
A sole proprietorship is the most likely structure you will use for your practice. It is run by a single person who accepts all the responsibilities and liabilities for the business. This means you get all the profits but you are also responsible for any debts, liabilities and business losses. You don’t have to do anything to make your business a sole proprietorship. If you are the only owner, then your business is automatically a sole proprietorship. You still may need a business license and a professional license, depending on the state your business is in. If you run the business under another name, you will need a DBA or Doing Business As name registered with your state. Taxes are paid as self-employment taxes.
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a business structure that is combines a Partnership and a Corporation. It is similar to a Partnership and has the tax benefits of a Corporation. An LLC protects the owners of a business from liability if the business is involved in a lawsuit. Owners in a LLC are called members. Profits and losses are passed to the members of the LLC. They report their profit and losses on their personal tax returns.
A Partnership is a business structure where two or more people share ownership in the company. The partners all take part in running the business and share in the profits or losses. There are different types of Partnerships depending on the partners responsibilities, the arrangement partners agree upon or length of time for the Partnership.
A Corporation (C Corporation) is usually a larger business with multiple employees and an administrative staff. It has a more complex business structure than other businesses. It has shareholders who own part the Corporation. They can own a small part or a large part of the Corporation depending on how many shares they own. The Corporation itself is liable for any legal issues, debts and taxes. Businesses will often form a Corporation to raise capital. When a Corporation goes “public” by an initial public offering (IPO), it sells shares in the Corporation through stocks offerings. Stocks in the Corporation are publicly traded on a stock exchange so people can buy and sell their shares.
A S Corporation is similar to a C Corporation but the taxes are not paid by the corporation itself. Taxes are paid by the shareholders instead. This keeps the business from being taxed twice, as a corporation and a shareholder. Shareholders have limited financial liability but it does not protect them completely from all litigation. Profits and losses are passed on to the shareholders. Shareholders who work for the company must pay themselves reasonable compensation based on what is fair market value for their position. Your company must first be a C Corporation before it qualifies to be an S Corporation.