Which Business Structure is Best for my Medical Practice?

An individual who does not create an entity.

• No taxes are imposed on the entity. Instead, the individual owner reports the income and pays the income taxes.

A corporation in which one or more shareholders must be licensed professionals (or entities that themselves are wholly-owned by licensed professionals). The P.A. can be taxed either as an S Corporation or as a C Corporation.

A corporation whose owner is not limited solely to licensed professionals. The corporation can be taxed either as an S Corporation or as a C Corporation.

• C Corporation: Unless it elects otherwise, a corporation must report its own income and pay its own income taxes, under Subchapter C of the Internal Revenue Code.
  • A C Corporation is also subject to Florida’s state corporate income tax at a rate of 5.5%. Any distributions of its earnings to its shareholders requires the shareholders to recognize dividend income, resulting in a second layer or taxation.
  • Many professional C Corporations attempt to avoid distributing dividends by paying all income as compensation (because although it is still taxable to the recipient employee/shareholder, the C corporation gets a deduction for such compensation, resulting in one-layer of taxation).
  • If a C corporation pays excessive compensation, the IRS may try to treat some of the compensation as a dividend distribution and deny the deduction to the corporation with respect to such imputed dividend.

A limited liability limited partnership comprised of at least one general partner and at least one limited partner, which is created by filing a Certificate of Limited Partnership and indicated LLLP status in such certificate. The status provides a general liability shield for all of the general partners.

No tax generally imposed on a corporation that elects to be treated as an “S Corporation” under Subchapter S of the Code. Rather, the tax consequences flow-through to the shareholder(s).

• Each shareholder reports his or her pro rata share of the tax consequences based on his or her ownership in the S corporation and pays the income tax at his or her effective personal income tax rate.
• Any distribution to the shareholder(s) is not treated as a dividend, but rather first is a return of basis and then excess is capital gain: provided, however, if the S corporation was formerly a C corporation within the past 10 years and had earnings and profits, then a portion of the distributions of the S corporation could be subject to tax as a dividend (Rather than a return of basis).
• Shareholder distributions:
  • must be made in the ratio or ownership;
  • can be abused to “save” payroll taxes applicable to compensation; and
  • lack the asset protection potential of compensation payable to the head of a family under Florida law.
  • A P.A. generally should elect to be taxed as an S corporation, preferably from inception.
  • If a corporation has already been taxed as a C corporation, then conversion to S Corporation status must be carefully considered to ensure that the “built-in gains” tax on unrealized receivables can be handled through proper accrual and payment of accounts payable and compensation.

A limited liability company in which one or more members must be licensed professionals (or entities that themselves are wholly-owned by licensed professionals). The P.L. can be taxed either as a disregarded entity (if there is only one member), as a partnership (if there is more than one member), or an S Corporation (whether it has one or more members.)

A limited liability company whose ownership is not limited solely to licensed professionals. The LLC can be taxed either as a disregarded entity, a partnership or an S corporation.

An entity that is comprised of two or more general partners. No written document is necessary to create a general partnership.

A limited liability partnership is comprised of two or more general partners, which registers with the state by filing a Statement of Qualification. The registration provides a general liability shield for all of the partners.

An entity comprised of at least one general partner and at least one limited partner, which is created upon the filing of a Certificate of Limited Partnership with the state.