LLC for Dentists and Doctors

Should you Start an LLC or PLLC for your Dental or Doctor’s office?

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 partnerships, 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.

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.

Why Starting an LLC or PLLC for a Doctor or Dentist Is Important

Personal Asset Protection

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.

Taxation

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.

Sole Proprietorship/General Partnership

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. 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.

C Corporation

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.

S Corporation

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.

Enhanced Credibility

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.

What is an LLC?

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 partnerships, 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.

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.

Read here for a more complete definition of “what is an llc?“.

How to Start an LLC for Dentists or Doctors

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):

1) Choose an LLC name

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.

2) Designate a registered agent

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.

3) File your formation documents with the state

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.

4) Acquire an EIN

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.

5) Create an LLC operating agreement

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.

6) Create a financial infrastructure

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.

7) Handle taxes, licenses, and permits

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.

8) Understand maintenance requirements (annual reports, franchise taxes, etc.)

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.

Additional Resources for Starting a Private Practice for Dentists or Doctors

1) American Medical Association

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.

2) Physicians Practice

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.

3) American Academy of Pediatrics

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.

4) American Dental Association

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.

5) How to Operate a Practice Right Out of Dental School

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.