Establish your Entity

Forming your entity is one of the first steps you will need to take when starting your practice. It is a very important step and we advise all of our clients to do some research before making any decisions. The type of entity you decide to form will largely depend on the current and future goals of your organization.

Below are the three most commonly used entity structures, please click on these links to learn more about each of them.

Limited Liability Company Overview

The limited liability company (LLC) is the most popular entity structure among our independent nurse practitioners. It not only offers limited liability protection and pass-through taxation, but the LLC itself legally exists as a separate entity from its owners. Therefore, the owners cannot typically be held personally responsible for the debts and liabilities of the LLC.

The LLC also allows for pass-through taxation as its income is not taxed at the entity level. However, a tax return for the LLC must be completed. Any income or loss of the LLC is passed through to the owner(s). The owners, also called members, must then report the income or loss on their personal tax returns.

Advantages of an LLC:

LLCs can be set up very quickly.
LLCs allow for pass-through taxation.
LLC members are not typically held personally responsible for the debts and liabilities of the business.
LLCs generally have no ownership restrictions.
LLC members have flexibility in structuring the management of the company.
Potential customers may perceive an LLC as a more professional entity than a sole proprietorship or partnership.

C Corporation overview

The standard corporation, also called a C Corporation, is the most common corporate structure. The corporation is a separate legal entity owned by the shareholder(s). Because of this, the shareholders cannot be held personally responsible for the debts of the corporation. The shareholders’ personal liability is typically limited only to the amount the shareholder invested in the company.

Taxation implications are usually a significant consideration when deciding which corporate structure to choose. The shareholders of C Corporations may experience double taxation, which simply means that corporate profits are taxed at both the entity and individual levels. Profits of the business are reported and taxed at the entity level first. This way, if the corporation distributes any portion of the remaining profits to the shareholders in the form of dividends, the shareholders must report the dividend as personal income and pay taxes on it at the individual level.

Advantages of a C Corporation:

Shareholders of a C Corporation are typically not personally responsible for the debts and liabilities of the business.
C Corporations can have an unlimited number of shareholders.
Ownership of a C corporation is easily transferable through the sale of stock.
C Corporations have unlimited life extending beyond the illness or death of the owners.
Additional capital can be raised by selling shares of the C Corporation's stock.
Potential customers may perceive a C Corporation as a more professional entity than a sole proprietorship or partnership.
C Corporations are generally audited less frequently than sole proprietorships.
Certain C Corporation business expenses may be tax-deductible.
Forming a C Corporation can result in self-employment tax savings.

S Corporation overview

An S Corporation is a standard corporation that has elected a special tax status with the Internal Revenue Service (IRS). The formation requirements for an S Corporation are the same as those for a C Corporation. Formation documents must be filed with the appropriate state agency and the necessary state filing fees paid.

One reason so many small business owners choose to elect S Corporation status with the IRS is that the S Corporation’s special tax status eliminates the possibility of double taxation common to C Corporations. With S Corporations, a corporate income tax return is filed but no tax is paid at the entity level. Instead, the profits or losses of the corporation are “passed-through” to the shareholders and are reported on their individual tax returns.

Advantages of an S Corporation:

S Corporations avoid the possibility of double taxation on profits.
Shareholders of an S Corporation are typically not personally responsible for the debts and liabilities of the business.
Ownership of an S Corporation is easily transferable through the sale of stock.
S Corporations have unlimited life extending beyond the illness or death of the owners.
Additional capital can be raised by selling shares of the S Corporation's stock.
Potential customers may perceive an S Corporation as a more professional entity than a sole proprietorship or partnership.
S Corporations are generally audited less frequently than sole proprietorships.
Certain S Corporation business expenses may be tax-deductible.
S Corporations can result in self-employment tax savings.
S Corporations may provide a number of income and tax savings.

S Corporation overview

S Corporations are subject to restrictions imposed by the IRS on who can be owners. S Corporation owners (shareholders) must meet the following criteria:

No more then 100 owners
Cannot be non-resident aliens
Cannot be C Corporations, other S Corporations, Limited Liability Companies (LLCs), partnerships or certain trusts.

To create an S Corporation, the proper formation documents, typically called the articles of incorporation or certificate of incorporation, must be filed with the appropriate state agency and the necessary state filing fees paid. After the corporation is created at the state level, a timely filing with the IRS of Form 2553 is necessary to elect the IRS S Corporation status. According to the IRS, the election process typically takes approximately 60 days.

Sole Proprietor Overview

A sole proprietorship is when a person does business as himself. There is no legal separation between the entity and the person. For tax purposes, both use the person's social security number as identification and both file one tax return. Business expenses can still be deducted.

Advantages of a Sole Proprietorship

There is no cost to operate as a sole proprietor.
There are no legal requirements.
There is no paperwork required by the State or Federal Government.