Opening a Practice: Which Professional Entity Should You Choose?

Contributed Editorial – The Triad Physician
January 2012
Karen McKeithen Schaede, Esq.

If you are planning to start your own practice, you have some important decisions to make. The first is which type of professional entity you will form. This decision will affect many aspects of the resulting practice, such as taxes, transferability of ownership interests, and liability that may be attributed to owners.

A health care professional has several entity options, with the most common choices being either a professional corporation (PC) or a professional limited liability company (PLLC). Each has advantages.

Both are organizations formed with state government approval by owners from one discipline (e.g., medicine) to provide a professional licensed service to the public.

Major differences between professional corporations and professional limited liability companies include:

  • Professional corporations are governed by Bylaws, while professional limited liability companies are governed by Operating Agreements.
  • Professional corporations are owned by shareholders, while professional limited liability companies are owned by members.
  • Professional corporations are managed by officers and directors, while professional limited liability companies are managed by managers or a member/manager.

Which is a better option for a medical practice? That decision should be made after consultation with accounting and/or legal professionals. In general, though, professional limited liability companies are a more flexible form of doing business, with fewer recordkeeping requirements than professional corporations. For example, professional corporations are required to hold an annual meeting and record minutes. There also may be tax advantages to creating a professional limited liability company, with opportunities for deductions not available to professional corporations.

The first step in forming either a professional corporation or a professional limited liability company in North Carolina is to inform the governing board for your profession of your desire to do so. Each governing board has its own set of rules and regulations that must be followed in the formation process, all of which involve granting certification that the organizer of the professional entity is, in fact, credentialed by that governing board and therefore eligible to organize a professional entity.

Once board certification is obtained, the Articles of Incorporation for a Professional Corporation or the Articles of Organization for a Professional Limited Liability Company are filed with the North Carolina Secretary of State. Depending on the professional governing board, you may have to provide a copy of the Articles once they have been accepted and file-stamped by the Secretary of State.

The issues touched on in this story are preliminary considerations that any prudent health care provider should weigh when contemplating the formation of a professional entity. We will discuss key additional matters to be considered in future articles.Karen McKeithen Schaede is the principal of Karen McKeithen Schaede Attorney at Law, PLLC, a small boutique law firm in Greensboro, NC, that specializes in health law, business/corporate law and employment law. Before receiving her JD from Mississippi College School of Law, Ms. Schaede earned a BS in Nursing from the University of North Florida and worked for 10 years as a registered nurse, putting her in a unique position to offer expertise to health care provider clients.

This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. The information contained in this article does not create an attorney-client relationship between Karen McKeithen Schaede Attorney at Law, PLLC, and the reader.