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How to Pick the Proper Legal Structure for Your Healthcare Practice

Healthcare professionals meeting in conference room

When establishing any business, it is important to understand the different types of legal entities available. Healthcare is no different. Depending on the size and nature of your practice, you may want to choose one business model and legal structure over another. Choosing the best legal structure available will have long-lasting effects on your liability, finances, time, and other business interactions. The choice should not be made lightly. You may be able to change the structure of your business at a later date, but it can be a difficult and time-consuming process.

A knowledgeable healthcare business attorney can help you determine the best structure for your organization and make sure that you jump through the appropriate legal hoops to ensure your healthcare entity is properly formed and licensed.

Types of Business Structures

The phrases legal entity, business entity, business form, and business structure are interchangeable and all mean the legal structure of your healthcare business. Medical businesses in California have the following options for legal structures:

  • Sole Proprietorship
  • Partnership
  • Incorporation

The appropriate legal structure for you will depend on the nature and size of your business, as well as your plans for your business in the future.

Considerations For Different Legal Entity Types

Which legal entity you choose will have wide-ranging effects on your business. Different legal structures will have different effects on the following:

  • Protection & liability: Will you be personally liable for business debts and other liabilities incurred? For malpractice suits? How are your assets protected?
  • What are your options for raising capital?
  • Management and control
  • Who owns the business? Who makes decisions? Who has the right to establish debts for the business or contractual obligations?
  • What is the process for transferring ownership? How are death and departure handled?
  • Formation and filing requirements, both at the start and ongoing
  • Taxation: Individual, flow-through, or standalone

Evaluating the different entity types for your practice

The different legal structures will have different pros and cons, including the level of legal protection they provide. In a sole proprietorship, for example, your business is essentially indistinguishable from yourself. It is the easiest to form, but it affords you no protection from liability, and you are directly taxed. Your personal assets may be reached to cover business debts or other professionally-incurred liabilities.

Partnerships, likewise, offer little protection from business debts or other liabilities, and they also open you up to the debts and liabilities incurred by the actions of the other partners.

Of note, other states allow medical professionals to establish limited liability companies (LLCs) or professional LLCs (PLLCs). In California, medical professionals do not have this option. Instead they must form professional corporations. Incorporating requires more legal hurdles to jump over, including significant paperwork, annual fees, and corporate rights and responsibilities. However, you and your family will be protected from direct liability based on business debts or non-professional liability (for example, a slip-and-fall accident at your office). You will still be subject to professional malpractice lawsuits and need to carry appropriate insurance.

These are just a few of the considerations that you and your healthcare business attorney should discuss in determining which legal structure is right for your practice.

Making Your Business Our Focus – Call California Healthcare Lawyer Art Kalantar

Getting your healthcare entity up and running or escalating it to the next level of operations is our business at the Law Offices of Art Kalantar. Our Los Angeles healthcare lawyer is here to help you fit all the pieces together, ensuring there are no gaps in your plan or unnecessary obstacles to overcome. When you are ready to begin learning about licensing requirements and healthcare entity formation processes, contact us to set up a free consultation. We are headquartered in Beverly Hills but help clients throughout California.

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