Choosing the Right Business Structure for Your Physician Practice

As a physician, your expertise lies in patient care — not necessarily in selecting the best business structure for your practice. Yet this decision is crucial. Whether you’re launching a new clinic, acquiring a practice or restructuring, your chosen physician business structure can directly impact your taxes, legal exposure and long-term success.

Why Business Structure Matters for Medical Practices

Selecting the appropriate medical practice entity is more than a paperwork decision. It influences everything from liability protection to your tax treatment and growth potential. In a field where malpractice risk is high, shielding your personal assets from business liabilities is vital.

Tax implications also vary by structure. Choosing wisely can reduce your annual tax burden by thousands. Your legal structure affects your flexibility in operations as well, which is especially important if you’re planning to expand or add partners.

Your structure even shapes how you can transition or sell your practice in the future. That’s why physicians need to carefully evaluate their options.

Common Business Structures for Physicians’ Practices

Now that we understand why business structure matters, let’s examine the specific options available to physician practices. Each structure offers a unique combination of legal, tax and operational characteristics.

In the following sections, we’ll explain the most common entities used by medical professionals, including LLCs (limited liability companies), S corporations, C corporations and professional entities. For each, we’ll discuss their key features, advantages and potential drawbacks, as well as scenarios where they might be the optimal choice.

But first, the chart below lists the different types of business structures we’ll look at and their most notable features to give a general overview before we dive deeper into their differences.

TABLE: Common Business Structures for Physician Practices Overview

Key Takeaway

Selecting the best business structure for your practice requires weighing multiple factors which we will delve into below. However, generally speaking:

• An LLC is ideal for small, flexible operations with minimal compliance requirements.
• An S corp offers tax advantages for mid-sized businesses but has ownership restrictions.
• A C corp is the best choice for larger companies planning to raise capital but requires more compliance and faces double taxation.

Limited Liability Company (LLC)

An LLC for physicians is popular due to its flexibility and protection. It limits personal liability while offering multiple tax election options:

• Single-member (disregarded entity): Income reported on personal tax return.
• Multi-member (partnership): Each member reports their share.
• S corporation election: Reduces self-employment taxes on distributions.
• C corporation election: Less common, but may benefit reinvestment-heavy practices.

In some states, doctors must form a PLLC rather than a traditional LLC. These function similarly but comply with professional regulations. We’ll talk about those a bit later.

S Corporation (S Corp)

An S corporation can reduce self-employment taxes by classifying a portion of earnings as distributions instead of salary. This approach is particularly effective in states like Florida, where there’s no personal income tax.

Benefits include:

• Pass-through taxation
• Potential tax savings on distributions
• Qualification for the long-term capital gains rate on practice asset sales

However, S corps have ownership restrictions (e.g., 100 shareholders max; U.S. citizens or residents only).

C Corporation (C Corp)

While less common among smaller practices, a C corp can make sense for large practices, especially those pursuing outside investment. It allows for:

• Unlimited shareholders
• Easier capital raising
• Broader fringe benefit options

The main downside is double taxation — profits are taxed at the corporate level and again on dividends.

Professional Corporation (PC or PLLC)

Some states require professionals (like physicians) to form a professional corporation or PLLC. These entities meet state-specific licensing rules but operate similarly to their standard counterparts from a legal and tax perspective.

In Florida, professional LLCs are designated as “PL,” which doesn’t impact their federal tax treatment. These entities can elect S or C corp taxation as well.

Making the Right Choice: Factors to Consider and Decision Process

No single option fits every practice. Consider these variables:

• Projected income: S corps may offer tax savings at higher income levels.
• Practice ownership: Solo vs. multi-partner ownership influences flexibility.
• State regulations: Some states limit which structures licensed professionals can use.
• Operational needs: Different structures offer varying levels of management control.
• Exit strategy: Some structures simplify succession planning or partner buy-ins.

Work with healthcare tax and legal professionals to model scenarios and weigh the long-term impact of each structure.

Combining Multiple Entity Structures

Some healthcare groups, especially those involving private equity, benefit from combining multiple structures:

1. LLC #1 (Real Estate Holding): Holds practice-owned property; taxed as a partnership. Rental income passes through to partners.
2. LLC #2 (Operating Entity): Provides medical services; owned by licensed physicians; elects C corp taxation; pays management fees.
3. LLC #3 (Management Company): S corp that receives fees; pays owner salary plus tax-advantaged distributions.

This layered approach optimizes liability protection, tax treatment and regulatory compliance. However, it requires close coordination with tax and legal advisors.

Build Your Practice with Support from James Moore

Choosing the right business structure for your medical practice is foundational to success. James Moore’s healthcare CPAs provide customized guidance for entity selection, tax strategy and long-term planning.

James Moore’s team of expert healthcare CPAs can guide you through this complex process. We’ll assess your practice’s current challenges and help you map out a profitable path forward — including choosing the best structure for your situation. To learn more, start the conversation today.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.