Whether you’re a family doctor, cosmetic dental professional, surgeon, chiropractor or other healthcare professional, you have to manage your finances in addition to treating patients. Financial factors you need to think about include taxes, business assets, accounting needs and legal liability. Is incorporating a good idea for healthcare industry professionals?
Can You Avoid Legal Responsibility With a Corporation?
One reason sole proprietors in different industries look to form a corporation or limited liability company is to avoid personal liability for things that happen in business. For example, the owner of a retail store doesn’t want creditors going after his or her personal bank account in the case of business debts. An LLC or corporation can help separate business and personal finances legally. Can healthcare practices benefit from this technique?
Yes and no. One thing that doctors and other medical professionals are always liable for personally is patient treatment. Having a corporation or LLC won’t protect you against lawsuits for malpractice or problems stemming from treatment. You will still need malpractice insurance for these situations.
However, forming a private entity can help to protect you against liability related to your role as business owner. For example, if someone slips on the floor at your clinic, you can protect your personal finances from a lawsuit as a corporation or LLC. Instead of suing you for the accident, the patient would have to sue your business. This type of legal protection also applies to liability related to your employees or third parties.
Can You Benefit Financially From Forming a Corporation?
Depending on the type of private entity you choose, things such as taxes and accounting can be simpler or more difficult. In general, corporations enjoy larger deductions and increased tax benefits compared to self-employed professionals. C corporations can actually cause you to get taxed on income twice, but S corporations are different. Business professionals such as doctors may choose to form a qualified personal service corporation, though this is more common when two or more doctors work together in the same clinic.
An LLC is treated the same as a sole proprietorship or partnership for tax purposes. One benefit to this type of private entity, however, is being able to maintain your personal and business expenses clearly separate. This can help you simplify accounting and tax payments. Also, you may be able to qualify more easily for business financing if your business has a separate credit score from your personal credit.
Forming a corporation or an LLC in the healthcare industry is a common practice, and it has many benefits for liability protection and financing. Before you decide, contact an attorney to check your state laws.