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Starting an LLC for Dentists & DoctorsIf you are a doctor or dentist looking to establish an independent practice, you’ve probably at least considered forming a limited liability company (LLC) for your business. The LLC is a popular option for all sorts of businesses looking for asset protection, and it has a handful of other major advantages as well.

Of course, forming an LLC isn’t the only option for your private practice, so our mission is to help you decide if it’s the best choice for you. There are many different factors to consider when you’re forming a business entity for your doctor or dentist practice, so let’s dive into the details of the LLC to figure out if you should form one for your business.

What Is an LLC?

First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.

There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.

It’s important to note that in some states, doctors and dentists are required to form professional LLCs (PLLC) instead of a regular LLC. Before you create either an LLC or a PLLC for your practice, you should check with the state to make sure you’re forming the correct entity.

Why Starting an LLC for a Doctor or Dentist Is Important

The top reason to form an LLC for a doctor or dentist is to gain access to the personal asset protection provided by this business structure. Whether you own an independent practice on your own or with several other physicians or dentists, you need the limited liability protections that an LLC can provide.

As an example, let’s say that a customer slips on a wet spot on your floor, falls over, and injures themselves. If you operate your practice as a sole proprietorship or general partnership, your personal assets — like your house, car, personal bank accounts, etc. — would be at risk if that customer decides to sue your business.

On the other hand, if you form an LLC for your independent practice, and you operate and maintain that LLC in a compliant fashion, the scope of your customer’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.

However, we will mention that the personal asset protection provided by the LLC entity type does not extend to issues of malpractice. For these issues, you will need to have malpractice insurance, as the LLC’s business structure offers no protections for failing to provide proper care for your patients.

Asset protection is just the tip of the iceberg when it comes to the advantages of the LLC for a doctor or dentist. Another critical aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can save you a considerable amount of money compared to simply operating as an informal business entity.

Your independent practice’s LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your practice itself does not pay taxes, but rather the profits are passed through the business entity and your owners pay taxes on that money when they file their own personal taxes.

You can also choose for your private practice to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to your owners.

The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most private practices have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.

S corp taxation can help your practice save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself and your co-owners a reasonable salary for your roles and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.

Compared to operating a sole proprietorship or general partnership as a doctor or dentist, the S corp taxation model can save you quite a bit of cash that you can use to buy new equipment and make other improvements to your practice, rather than writing a big check to Uncle Sam.

For most business types, the LLC can also provide enhanced credibility to your business, but we don’t necessarily see that as the case for doctors or dentists. You already have plenty of credibility to your patients due to the fact that you graduated from medical school and passed your state’s certification exams, so forming an LLC is more of a bonus than a necessity in this particular area.

How to Start an LLC for Dentists or Doctors

The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete guide on the topic. The basic steps in the LLC formation process in any state are as follows:

The 3 Best LLC Services

When forming an LLC for your business, you generally have three main options. You can form your own LLC using the DIY method, you can hire an attorney, or you can hire an online business formation service.

The DIY route can require quite a bit of effort, and if you’re not comfortable with the process, it can cause some undue stress. As for hiring a lawyer, many startups can’t afford to spend the thousands of dollars it can cost for an attorney to form your business entity.

This leads us to the third option, hiring an online LLC service. There are dozens of reputable companies offering this service these days, and they can all save you a tremendous amount of money compared to an attorney. In addition, while these companies may not have as much expertise as an attorney does, they still provide a considerable amount of peace of mind compared to the DIY route.

If you want to take a look at the top options for online business formation services, head on over to our guide to the seven best LLC formation services available. In addition, we’ll briefly break down our top three options on this page. These are, in our opinion, the best options for business formation service:

  • ZenBusiness ($39): ZenBusiness truly has it all. They provide complete LLC formation service along with a full year of registered agent service for one incredibly low rate, and they also have stellar customer feedback. It’s hard to go wrong with an offer like this.
  • Northwest Registered Agent ($79): Northwest is a bit more expensive than ZenBusiness, but their industry-best registered agent service (included at no extra charge) includes local scanning of every document they receive on your behalf. They also have the best customer support available for LLC formation services. If you’re looking for more of a premium service, Northwest is an excellent choice.
  • Incfile (FREE): Incfile has a business formation package that is free of charge, as long as you pay your own state fee. That’s obviously an enticing offer, especially when you consider that they also provide a year of registered agent. Throw in their strong customer feedback, and Incfile is an excellent choice for LLC formations.

Additional Resources for Starting a Private Practice for Dentists or Doctors

  • American Medical Association: The AMA is one of the leading organizations when it comes to lobbying on behalf of physicians and “driving medicine toward a more equitable future.” We’re big fans of their website’s practice management page, which provides doctors with a wealth of resources to help them operate their practices efficiently.
  • Physicians Practice: Physicians Practice is an organization that provides communication and media services to physicians of all kinds. Their website has a broad selection of resources about the future of telemedicine, how to develop efficient communication between doctors and patients, and more. We also appreciate their “Ten Must-Read Resources for Medical Practices” page — even though it was compiled in 2015, these ten resources are still highly valuable and relevant today.
  • American Academy of Pediatrics: The AAP has tons of resources for pediatricians, but we especially like their “Establishing a New Private Practice” page. This highly informative guide goes into great detail about how to acquire insurance, work with consultants, get loans, write business plans, and much more. This advice doesn’t just suit pediatricians either, as most of the information is applicable to any physician’s practice.
  • American Dental Association: There’s simply no better resource for dentists in the United States than the ADA, as they really live up to their catchphrase of being “America’s leading advocate for oral health.” Their website has a vast array of helpful articles and resources for dentists, whether you operate your own practice or partner with other reputable dentists.
  • How to Operate a Practice Right Out of Dental School: This free guide from Becker’s Dental Review is an excellent roadmap for any freshly graduated dentist looking to start their own practice. If you’re not interested in partnering with other dentists in established practices, this article tells you everything you need to know to get your new practice off the ground.