Starting your own medical practice means choosing a legal structure that fits your profession, location, and ownership plans. State law may determine whether you can use an LLC or need a professional entity such as a PLLC or professional corporation, as well as who can own the practice.
Jackson LLP works with physicians and other healthcare professionals to form and structure practices, including single-owner and multi-owner practices. We can address entity formation, ownership restrictions, governing documents, and state registration requirements as you establish your practice.
Choosing an Entity for a Healthcare Practice
An LLC may offer liability protection and a flexible management structure, but healthcare practices face requirements that do not apply to many other businesses. Depending on the state and profession, you may need a PLLC, professional corporation, or another permitted professional entity.
Your entity choice can also affect who may own the practice and whether professionals with different licenses can practice together. Once you select an entity, you may also need an operating agreement or other governing documents, state registrations, and professional licensing registrations.
LLC vs. PLLC for Physicians and Healthcare Providers
A PLLC is a type of limited liability company designed for licensed professionals. An LLC is a more general business entity that can be used for many types of businesses.
For physicians and other healthcare providers, the distinction matters because some states require a professional entity for the practice of medicine, while others allow practices to use a standard LLC. The rules may also differ by profession and ownership structure.
Both LLCs and PLLCs can provide protection from certain business liabilities. Neither entity generally protects a medical professional from personal liability for their own professional negligence.
What About S-Corporation Tax Treatment?
Tax treatment is a separate question from entity selection. An LLC or PLLC may have different federal and state tax treatment depending on its ownership and elections.
An S-corporation is a federal tax classification, not a separate type of legal entity. Depending on the entity and its ownership, an LLC, PLLC, or corporation may be eligible to elect S-corporation tax treatment.
Whether that election makes sense depends on the practice’s circumstances and tax considerations. Entity formation and tax planning are separate decisions, so discuss the tax implications with your accountant or tax professional.
Professional Entity Requirements Vary by State
No single entity structure applies to every healthcare practice. State law can determine:
- Whether a physician may use a standard LLC
- Whether a PLLC, PC, or another professional entity is required
- Who may own the professional entity
- Whether owners must hold a particular professional license
- Whether professionals with different licenses may own the same practice
- What professional services the entity may provide
- Whether the entity must register with a professional licensing agency in addition to the state’s business filing office
These requirements can apply even when the state’s business filing system accepts an entity formation document. For example, the Illinois Secretary of State accepts LLC filings, but certain licensed professionals providing professional services must meet additional professional-entity requirements before registering the practice with the Illinois Department of Financial and Professional Regulation.
For practices operating in more than one state, additional questions may arise about foreign registration, professional licensing, and whether the existing entity can legally provide services in another state.
Corporate Practice of Medicine and Ownership Restrictions
Entity selection is closely connected to ownership. The corporate practice of medicine (CPOM) doctrine is a state-law concept that can restrict who may own or control a medical practice. The scope of these restrictions varies significantly by state.
In a state with CPOM restrictions, a physician may need to own the professional entity that provides medical services. A non-physician may not be able to own that entity directly, even if the non-physician provides capital or manages the business side of the practice.
Ownership rules can also become more complicated when:
- Multiple healthcare professionals want to own the practice together
- The proposed owners hold different professional licenses
- A physician wants to bring a non-physician into the business
- An investor wants an ownership interest
- The practice operates in multiple states
- The practice uses a separate management company
Establish the ownership structure before forming the entity or transferring ownership. Changing the structure later can require amendments to formation documents, governing agreements, registrations, contracts, and other business records.
What Happens When Multiple Physicians Own a Practice?
Two or more physicians can often own a healthcare practice together, subject to the applicable state’s ownership and professional-entity rules. Beyond the entity filing, the owners of a multi-owner practice should establish how the practice will be managed and what happens when circumstances change.
An operating agreement, shareholder agreement, or other governing document may address:
- Ownership percentages and financial contributions
- Voting and management rights
- Owner responsibilities
- Compensation and distributions
- Admission of future owners
- Buy-in and buyout terms
- Restrictions on ownership transfers
- What happens if an owner retires, dies, becomes disabled, or leaves the practice
- What happens if an owner loses or restricts a professional license
- How disagreements and deadlocks will be resolved
These provisions are particularly important when owners have different levels of financial investment, clinical involvement, or management responsibility.
The proposed owners must also be legally eligible to own the professional entity. That analysis can become more complicated when the owners have different professional licenses or intend to provide different types of healthcare services.
When Does an MSO Structure Enter the Picture?
Some healthcare businesses separate clinical ownership from administrative operations through a management services organization (MSO). An MSO is a separate business entity that can provide non-clinical services to a physician-owned professional entity.
Depending on the arrangement, the MSO may handle administrative functions such as billing, technology, marketing, facilities, or non-clinical staffing. The professional entity remains responsible for providing clinical services and maintaining control over medical decisions.
An MSO structure may make sense when a non-physician entrepreneur or investor wants to participate in the business, when a healthcare platform needs centralized administrative operations, or when the parties want to separate clinical and administrative functions.
The structure must be carefully designed. CPOM restrictions, state fee-splitting laws, federal healthcare laws, management fees, and the allocation of decision-making authority can all affect the arrangement.
Creating separate entities on paper is not enough. The practice operations should match the legal structure and preserve the professional entity’s authority over clinical matters.
Entity Formation Is Only the Beginning
Once you select the right entity, the practice may still need additional documents and registrations. Depending on the practice and its ownership structure, a healthcare attorney from Jackson LLP may work with you on:
- Forming an LLC, PLLC, PC, or other permitted entity
- Preparing operating agreements, bylaws, or shareholder agreements
- Structuring ownership and voting rights
- Addressing professional-entity ownership restrictions
- Registering the practice with applicable state agencies
- Structuring multi-owner practices
- Adding a physician or other eligible owner to an existing practice
- Structuring ownership transfers and buyouts
- Evaluating CPOM issues
- Structuring a professional entity alongside an MSO
- Drafting or reviewing agreements between a professional entity and an MSO
- Coordinating entity formation with other practice-startup requirements
We also consider how the entity will operate after formation. Maintaining separate business records, following the governing documents, observing required corporate formalities, and properly documenting ownership changes all help preserve the protections and benefits of the entity.
Healthcare Entity Formation With Jackson LLP
Jackson LLP represents healthcare professionals and practice owners in forming and structuring healthcare businesses. We can assess the entity options available in your state, identify ownership restrictions, prepare formation and governing documents, and address more complex structures involving multiple owners or an MSO.
We begin with a free 15-minute consultation and provide a written proposal before work begins. Flat-fee pricing is available for most formation and entity-structuring projects. Reach out today to learn more.
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Frequently Asked Questions
Do physicians need a PLLC?
Not necessarily. Whether a physician must form a PLLC, professional corporation, or another professional entity depends on the laws of the state where the practice operates and the physician’s profession.
Can a physician own a regular LLC?
In some states, yes. Other states require physicians providing professional services to use a PLLC, professional corporation, or another permitted professional entity. Review the state’s professional practice and entity laws before forming the practice.
Can a PLLC elect S-corporation tax treatment?
Yes. A PLLC may be eligible to elect S-corporation tax treatment if it meets the applicable IRS requirements. S-corporation status is a tax classification rather than a separate type of legal entity, so forming a PLLC and electing S-corporation tax treatment are separate decisions. Practice owners should consult a tax professional about whether the election fits their circumstances.
Can two physicians own a PLLC together?
In many states, multiple licensed professionals can jointly own a professional entity. Owners must meet applicable licensing and ownership requirements, and the governing documents should establish how the practice will be managed.
Can a non-physician own part of a medical practice?
It depends on the state, profession, and structure. Some states restrict ownership of professional healthcare entities to appropriately licensed individuals. In those cases, a separate MSO may let a non-physician participate in the administrative side of the business without directly owning the professional entity.
Does an MSO own the medical practice?
No. In a common MSO structure, the physician-owned professional entity provides clinical services while the separately owned MSO provides administrative services under a management services agreement. The precise structure depends on applicable state and federal law.
Related Resources
Considering a PLLC in Illinois? See what changes when a healthcare practice operates through a professional entity.
Your entity documents should establish who makes decisions, how ownership works, and what happens when circumstances change.
Physician ownership isn’t the only consideration when investors, entrepreneurs, or management companies become involved.