Am I Compliant? State and Agency Rules Vary

Successfully registering your healthcare business with the state doesn’t necessarily mean you’re fully compliant. From choosing the right entity type to meeting your licensing board’s requirements, overlooking key steps can create serious complications.

Starting a healthcare practice involves a lot of moving parts—defining your ideal patient population, choosing a business model, deciding whether to accept insurance, and much more. With all these considerations, registering your business with the state might seem like one of the simpler steps. File the paperwork, and you’re all set, right?

Not necessarily. While forming a corporation or limited liability company (LLC) offers benefits, ensuring compliance often requires more than just filing a form. The specific requirements depend on where you’re located and the nature of your business.

Does Approval of Your Business Registration Equal Compliance?

When registering a business—typically by filing Articles of Organization (for an LLC) or Articles of Incorporation (for a corporation)—states ask for basic details like the business name, address, and a designated recipient for official notices. Some states also require information about the business’s owners, while others don’t. Certain states may ask for licensing details or require approval from professional boards before registration.

However, approval from the Secretary of State’s office doesn’t necessarily mean your business is fully compliant. Many professionals inadvertently form the wrong type of business or miss key compliance steps, leading to potential legal issues.

Naming Issues

In California, for example, the Business and Professions Code requires certain professionals to include specific wording in their business names. Psychologists, for instance, must include “psychology” or a related term in their professional corporation’s name. However, because this rule is enforced by the psychology board—not the Secretary of State—the state may approve a noncompliant name, only for the board to flag it as unacceptable later.

See our related article, “3 Tips for Choosing a Name for Your New Healthcare LLC or Corporation.”

Wrong Business Type

Some states, like New York and Illinois, require licensed professionals to operate through professional business entities, such as professional limited liability companies (PLLCs) or professional corporations (PCs). If you mistakenly register as a standard LLC instead of a PLLC, your business might not be compliant—even if the Secretary of State allows the filing. In states like Illinois, operating outside your licensure rules could be considered unprofessional conduct, which can lead to disciplinary action from agencies like the Illinois Department of Financial and Professional Regulation (IDFPR) or the New York Department of Education.

See our related articles:

“Should I Establish a PLLC or an LLC for My Illinois Healthcare Practice?”

“Why Accountants Should Not Form LLCs or PLLCs for Healthcare Practices”

Other State Requirements

In some cases, a non-compliant business may still be able to get credentialed with insurers, but that doesn’t mean everything is legally sound. Problems can arise when structuring contracts for a business that appears legitimate but isn’t operating in compliance with state laws.

For instance, if you own a medical practice in which physicians provide clinical services—but you’re not a licensed physician yourself—your business could violate the corporate practice of medicine (CPOM) doctrine or other state laws that prohibit non-physicians from owning a medical corporation. The state might approve your business registration, and insurance companies may even credential your practice, but that doesn’t mean your structure complies with medical board regulations. Fixing these issues later can be costly and complex.

See our related video, “The Corporate Practice of Medicine in Illinois”