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First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnership vs LLC, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.
There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk (see members definition).
A PLLC is similar to an LLC, except for the fact that it’s intended for certified professionals. In 28 states (plus D.C.), this is often the preferred route to form a business entity for doctors or dentists. For more information, consult an attorney or your state’s Secretary of State office.
The top reason to form an LLC (or PLLC) for a doctor or dentist is to gain access to the personal asset protection provided by this business structure. Whether you own an independent practice on your own or with several other physicians or dentists, you need the limited liability protections that an LLC can provide.
As an example, let’s say that a patient slips on a wet spot on your floor, falls over, and injures themselves. If you operate your practice as a sole proprietorship or general partnership, your personal assets — like your house, car, personal bank accounts, etc. — would be at risk if that patient decides to sue your business.
On the other hand, if you form an LLC for your independent practice and you operate and maintain that LLC in a compliant fashion, the scope of your patient’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.
However, we will mention that the personal asset protection provided by the LLC entity type does not extend to issues of malpractice. For these issues, you will need to have malpractice insurance, as the LLC’s business structure offers no protections for failing to provide proper care for your patients.
Asset protection is just the tip of the iceberg when it comes to the advantages of the LLC or PLLC for a doctor or dentist. Another critical aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can save you a considerable amount of money compared to simply operating as an informal business entity.
Your independent practice’s LLC or PLLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option (see multi-member LLCs definition). With this tax structure, your practice itself does not pay taxes, but rather the profits are passed through the business entity and your owners pay taxes on that money when they file their own personal taxes.
You can also choose for your private practice to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to your owners.
The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most private practices have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.
S corp taxation can help your practice save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself and your co-owners a reasonable salary for your roles and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.
Compared to using a sole proprietorship or general partnership taxation model as a doctor or dentist, the S corp taxation model can save you quite a bit of cash that you can use to buy new equipment and make other improvements to your practice, rather than writing a big check to Uncle Sam.
For most business types, the LLC or PLLC can also provide enhanced credibility to your business, but we don’t necessarily see that as the case for doctors or dentists. You already have plenty of credibility with your patients due to the fact that you graduated from medical school and passed your state’s certification exams, so forming an LLC is more of a bonus than a necessity in this particular area.
There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.
Read here for a more complete definition of “what is an llc?“.
The formation process for LLCs and PLLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete LLC guide on the topic. The basic steps in the LLC formation process in any state are as follows (keep in mind that PLLCs may have additional steps not listed here):
Coming up with the perfect name for your new LLC or PLLC is an important step. You’ll need to choose a name that represents your company and describes what you do, and you’ll also have to make sure it isn’t already in use by checking your state’s business database.
Your LLC’s registered agent (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process, annual report reminders, etc. — and forwarding them to you. The registered agent ensures that the state and process servers always have a reliable point of contact for your business.
The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). In states that allow PLLCs, you might use the same document as a standard LLC, or there could be a separate form. You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.
The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can easily obtain an EIN from the Internal Revenue Service free of charge.
Most states don’t require operating agreements but every LLC or PLLC should have one regardless. This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.
You will need a business bank account for your LLC or PLLC, and you’ll probably want a business credit card for work-related expenses as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.
Depending on your state, you may need a general business license to operate your LLC or PLLC in compliance with state requirements. Obviously, you will also need to be licensed to practice medicine in your state of operation as well. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal and/or county government entities have any further licensing requirements. If you form a PLLC, remember that many states require half or all of a PLLC’s members to be licensed in the same profession.
Again, these requirements can vary by state and entity type, but most states require some sort of regular report to ensure that your LLC’s info is up-to-date in the state’s business database. Some states require reports each year, while others only require them biannually or not at all. If you form a PLLC, you will also need to make sure your members keep their certifications up-to-date. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.
The AMA is one of the leading organizations when it comes to lobbying on behalf of physicians and “driving medicine toward a more equitable future.” We’re big fans of their website’s practice management page, which provides doctors with a wealth of resources to help them operate their practices efficiently.
Physicians Practice is an organization that provides communication and media services to physicians of all kinds. Their website has a broad selection of resources about the future of telemedicine, how to develop efficient communication between doctors and patients, and more.
The AAP has tons of resources for pediatricians, but we especially like their “Establishing a New Private Practice” page. This highly informative guide goes into great detail about how to acquire insurance, work with consultants, get loans, write business plans, and much more. This advice doesn’t just suit pediatricians either, as most of the information is applicable to any physician’s practice.
There’s simply no better resource for dentists in the United States than the ADA, as they really live up to their catchphrase of being “America’s leading advocate for oral health.” Their website has a vast array of helpful articles and resources for dentists, whether you operate your own practice or partner with other reputable dentists.
This free guide from Becker’s Dental Review is an excellent roadmap for any freshly graduated dentist looking to start their own practice. If you’re not interested in partnering with other dentists in established practices, this article tells you everything you need to know to get your new practice off the ground.
What liability risks do dentists and doctors face?
There are many liability issues for medical professionals that aren’t addressed by simply forming an LLC or PLLC, such as malpractice. You’ll need malpractice insurance to protect yourself from these risks.
However, for things like a simple slip-and-fall accident that can occur in any brick-and-mortar establishment, forming an LLC or PLLC can definitely help limit your liability. In short, just because you have malpractice insurance doesn’t mean you should operate your private practice as an informal business entity.
Why should I form an LLC or PLLC instead of a corporation or PC?
Everyone’s situation is different, and we are not here to provide legal advice. That said, the limited liability company has some concrete advantages over the corporation that makes it the preferred option for most small businesses.
Corporations tend to have more complex formation and maintenance requirements, and they don’t have the taxation advantages of an LLC. The corporation has some advantages of its own (for example, it’s easier to attract investors to a corporation) that make it worth a look but the LLC is a simpler and more flexible business structure.
Can I serve as my LLC’s registered agent?
You certainly can! Every state allows entrepreneurs to serve as their own registered agents. However, while the role of the registered agent can seem like that of an unnecessary middleman, there is more complexity to this position than some people realize.
For instance, you would need to be present and available at your business location during all standard business hours. Otherwise, you could risk missing an important service of process delivery.
Why should I hire an LLC service when I can form my own LLC?
The DIY route is always an option for LLC formation. However, LLC services are so affordable that there’s really no good reason not to use one these days. In addition, some of these companies often throw in free bonus features that make them an even better bargain.
Need some additional information, check out our ZenBusiness vs LegalZoom page.
Should I form my LLC or PLLC in my home state, or choose a state like Delaware or Wyoming?
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well. Additionally, for PLLCs, forming in a different state could lead to issues with certifications.
How much does it cost to form an LLC?
The costs of LLC formation can vary quite a bit depending on which state you’re forming one in. For in-depth information about LLC formation costs in your specific state, take a look at our guide to state-by-state expenses.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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