Opening a practice or embarking upon a new business venture can be an exciting and anxiety provoking experience. Often professionals spend too little time considering what business structure would maximize their profit and minimize their exposure to liability. Partnerships, limited liability companies and corporations are three of the most common types of business entities and each poses different advantages and disadvantages.
Any physician contemplating a new venture would be well advised to assess the needs of the venture and choose the structure that best suits its likely needs. In doing so, consider how many investors will have an ownership interest in the business and the extent of their respective ownership, control, and liability. Also, consider the time and cost associated with setting up a business entity, tax consequences, the transferability of ownership and management interest and the intended lifespan of the entity.
A partnership is an organization composed of two or more persons or entities that join forces for the purpose of running a business for profit. Its owners or “partners” share the ownership and management interest of the partnership. While a partner can freely assign her profits (ownership interest) to another, she may not assign her control (management interest) without the consent of all of the partners, unless agreed upon in writing. Partnerships enjoy limited life and dissolve upon the death, bankruptcy or withdrawal of any partner.
While a partnership may be formed without a written agreement, the failure to do so is a recipe for disaster. Written partnership agreements should spell out the financial and managerial responsibilities of each partner, including the requisite capital contributions of each and how profits and losses will be apportioned. The partnership agreement may also provide guidelines for the transfer of ownership interest and the dissolution of the business. Despite any such agreement, New York law holds each partner liable for acts performed on behalf of the partnership by any partner or employee. Partnership liability is unlimited and can place personal assets at risk.
Significantly, partnership income is not subject to taxation. Rather, each partner is taxed individually for his own income. However, by filing certain forms, a partnership can elect to be taxed like a corporation if this arrangement will create a tax savings.
A corporation is a legal entity owned by one or more persons (or other business entities). Owners are issued stock (i.e. shares of corporate ownership). Shareholders elect directors who set corporate policy and appoint officers responsible for the actual operation of the business. Through its officers or directors, a corporation may enter into contracts, own property, sue or be sued, pay taxes and conduct business. Shareholders enjoy limited liability and a shareholder’s risk is generally limited to the value of his or her stock.
Corporations have many rules associated with formation and maintenance. A corporation must file a certificate of incorporation setting forth its name and corporate purpose. In order to assure limited shareholder liability, corporations are required to obey a strict set of rules and maintain particular business records.
Unlike partnerships, corporations are separate and distinct legal entities from their shareholders. Consequentially, corporations can enjoy perpetual life and its stock may be freely transferred. Also, corporate income is taxed twice. A corporation is taxed on its income and its shareholders are taxed on the dividends they receive. However, shareholders that also work for the corporation may enjoy tax free fringe benefits such as health and life insurance. Entities known as “S” corporations are taxed like partnerships but enjoy the limited liability and other advantages of incorporation. With some exceptions, “S” corporations cannot have more than 100 shareholders, all of which must be U.S. residents, qualifying trusts or certain tax exempt individuals.
A limited liability company or LLC is an entity owned by one or more natural persons or entities, known as “members” or “managers.” It is formed by filing an article of organization with the state in conformance with the requirements of New York’s Limited Liability Company Law. Significantly, members are not personally liable for the business debts of the company, unless specified by the articles of organization. The entity may elect whether it will be treated like a corporation or a partnership for tax purposes, without being subject to the liability of a partnership or the restrictions imposed on an “S” corporation. An LLC must adopt a written operating agreement setting forth how and by whom the company is to be managed, how ownership interests may be transferred, the obligations of the members with respect to each other and the circumstances under which it may be dissolved.
Formation of an LLC may be expensive and technical. New York law provides minimum requirements for a business to receive limited liability company treatment. Like a partnership, an LLC has limited life. The operating agreement must specify an outside date for the dissolution of the company. Absent a contrary provision in the operating agreement, an LLC will dissolve upon the death, withdrawal or bankruptcy of a member. Like a partnership, a member’s financial interest in the LLC is freely transferable, but her management interest is not absent the consent of the other members.
There are many different ways to structure a business venture and the nuances of formation are rife with benefits and consequences. As such, these considerations should first be discussed and analyzed with a knowledgeable attorney and tax advisor before going forward. If you have any questions about transactional matters of any kind, please contact Mathew J. Levy, Esq. at 1-800-445-0954.
Appellate Division Upholds Right to Arbitrate Medical Malpractice Cases - But Only After Overcoming Huge Hurdle, August 2010
by: Steven I. Kern, Esq.
OPMC Consequences of Improper Delegation, August 2010
by: Michael J. Schoppmann, Esq.
Top Reasons Physicians Are Sued for Malpractice, August 2010
by: Michael J. Schoppmann, Esq.
More Stupid Regulations, July 2010
by: Steven I. Kern, Esq.
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by: Michael J. Schoppmann, Esq. and Stacey Lipitz Marder, Esq.
An End to Class Action Abuse?, April 2010
by: Steven I. Kern, Esq.
Is it Time to Opt Out of Medicare?, April 2010
by: Steven I. Kern, Esq.
Ranking State Medical Boards, Are the Best Really the Worst?, April 2010
by: Steven I. Kern, Esq.
Understanding the Process of Selling a Medical Practice, April 2010
by: Mathew J. Levy, Esq. and David N. Vozza, Esq.
Understanding the Negotiation of Managed Health Care Contracts, April 2010
by: Mathew J. Levy, Esq. and David N. Vozza, Esq.
An End to Malpractice Trials, March 2010
by: Steven I. Kern, Esq.
Physicians as Targets: Insights, Hard Realities and How to Risk Manage Them, March 2010
by: Michael J. Schoppmann, Esq.
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by: Michael J. Schoppmann, Esq. and David N. Vozza, Esq.
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by: Michael J. Schoppmann, Esq.
Physician Legal Alert: Risk Management One Day a Year, November 2009
by: Michael J. Schoppmann, Esq.
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by: Michael J. Schoppmann, Esq.
Supply - Demand and the A.M.A., September 2009
by: Steven I. Kern, Esq.
Continued Erosion of the Medical Profession: We Need to Stop the Bleeding, August 2009
by: Steven I. Kern, Esq.
Rationing Healthcare: Who Decides When to Pull the Plug on Grandma?, August 2009
by: Steven I. Kern, Esq.
The Heat's Getting Hotter: Healthcare Prosecutions to Rise Dramatically, August 2009
by: Steven I. Kern, Esq.
Is the New Joint Commission Mandate that Healthcare Institutions Address Disruptive Behaviors an Appropriate Standard?, May & June 2009, Contributor
by: Michael J. Schoppmann, Esq.
Red Flag Rules Redux, May 15, 2009
by: Steven I. Kern, Esq.
Hospital Responsible for Patient's Surgical Bill Where Doctor Doesn't Participate with Patient's Insurance Plan, April 20, 2009
by: Steven I. Kern, Esq.
Governor Corzine Signs Legislation Amending Facilities Licensing Law and Codey Law, April 2009
by: Robert J. Conroy, Esq. and Denise L. Sanders, Esq.
Electronic Health Records. Will it Reduce Malpractice Claims?, March 2, 2009
by: Steven I. Kern, Esq.
New "Red Flag Rules" Apply to Physician Practices, March 24, 2009
by: Steven I. Kern, Esq.
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No Class In Class Action Litigation, February 2009
by: Steven I. Kern, Esq.
I'm Not Sorry for Not Saying I'm Sorry, January 23, 2009
by: Steven I. Kern, Esq.
Physician Legal Alert: "New Red Flag Rules" & Physician Practices, Fall 2009
by: Michael J. Schoppmann, Esq.
Physician Legal Alert: Abuse, Abandonment, Cruelty and Neglect: Pediatrics Reporting Obligations in New Jersey, Winter 2009
by: Michael J. Schoppmann, Esq.
Whose Side Are They On?, December 16, 2008
by: Steven I. Kern, Esq.
Medical Board Attacked from Former Insider. November 18, 2008
by: Steven I. Kern, Esq.
Patient Testimonials - More Risk than Reward?, June 2008
by: Michael J. Schoppmann, Esq.
Physicians' Best Chance for Power, June 2008
by: Michael J. Schoppmann, Esq.
Another Blow to Ambulatory Care Centers, May 22, 2008
by: Steven I. Kern, Esq.
Fewer Stark Changes Than Expected - But Still Significant, February 22, 2008
by: Denise L. Sanders, Esq.
White Paper - Physicians' Rights Issues Under the Office of Professional Medical Conduct State of New York, January 18, 2008
by: Michael J. Schoppmann, Esq. and Ralph A. Erbaio, Jr., Esq.
Beware of, and Be Ready for, The New Stronger, Office of Professional Medical Misconduct, Fall 2008
by: Michael J. Schoppmann, Esq.
Physician Legal Alert: The Coming Threat of RAC Audits and How to Avoid Them, Winter 2008
by: Michael J. Schoppmann, Esq.
The Hidden Threats, and New Realities of Medical Staff By Laws, Spring 2008
by: Michael J. Schoppmann, Esq.
Nurses in a Retail Setting: The Risks to a Supervising Physician, December 2007
by: Michael J. Schoppmann, Esq.
Appellate Division Upholds Gross Receipts Tax on Ambulatory Care Centers, November 2007
by: Steven I. Kern, Esq.
More Ways to be Sued-New Informed Consent Forms Required for Physician Protection, November 2007
by: Steven I. Kern, Esq.
Compliance Programs - A Preemptive Strike, November 2007
by: Daniel G. Giaquinto, Esq.
Understanding the Retail Based Clinic Debate, November 2007
by: Mathew J. Levy, Esq.
DOBI Adopts New PIP Medical Fee Schedule - Many Physicians Unhappy, September 2007
by: Denise L. Sanders, Esq.
Anti - Physician Acronyms, July - September 2007
by: Michael J. Schoppmann, Esq.
Understanding the Issues Related to Concierge Medicine, September 2007
by: Mathew J. Levy, Esq.
From PIP ARB to Penitentiary, August 2007
by: Steven I. Kern, Esq. and Daniel G. Giaquinto, Esq.
Dealing with the Long-Term Drug Dependent Patient, May 2007
by: Steven I. Kern, Esq.
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by: Steven I. Kern, Esq.
Yes, There is Justice!, April 2007
by: Steven I. Kern, Esq.
Federal Tools To Combat Health Care Fraud and Abuse, April 2007
by: Daniel G. Giaquinto, Esq.
How Physicians Won-Acting Together, and Without Litigation - A New Approach?, February 2007
by: Michael J. Schoppmann, Esq.
Expect More From Your Residents - A Court Will, January 2007
by: Steven I. Kern, Esq.
New Jersey Residents Held to Higher Standard of Care, January 2007
by: Steven I. Kern, Esq.
New York Enacts New Law Requring Accreditation of Office Based Surgical Practices, Fall 2007
by: Michael J. Schoppmann, Esq.
Retrospective Audits: How to Avoid Them, Winter 2007
by: Michael J. Schoppmann, Esq. and Mathew J. Levy, Esq.
Do We Need Specialized Courts?, November 20, 2006
by: Steven I. Kern, Esq.
The Criminalization of Medicine, November 13, 2006
by: Daniel G. Giaquinto, Esq.
Litigation of Hospital Medical Staff Matters, October 24, 2006
by: Robert J. Conroy, Esq.
A Step in the Right Direction for Managed Care Reform, But..., October 2006
by: Michael J. Schoppmann, Esq.
Office Based Surgery Audits - a.k.a. The Facility Fee Fight, September 2006
by: Michael J. Schoppmann, Esq. and Mathew J. Levy, Esq. and Ralph A. Erbaio, Jr., Esq.
New Jersey Hospital Medical Staffs and Medical Staff Peer Review Litigation, August 2006
by: Steven I. Kern, Esq. and Robert J. Conroy, Esq.
Hidden Issues in the Need for Tort Reform, April & May 2006
by: Michael J. Schoppmann, Esq.
A Physician's Primer for the 2006 Office of Inspector General's Work Plan, Spring 2006
by: Michael J. Schoppmann, Esq.
How Physicians Can, and Must, Protect Themselves, Summer 2006
by: Michael J. Schoppmann, Esq.
Understanding Physician Employment Contracts, October 2005
by: Steven I. Kern, Esq. and Mathew J. Levy, Esq.
What If? Can your office make a comeback from disaster?, September 2005
by: Robert J. Conroy, Esq.
Understanding Partnerships Limited Liability Companies & Corporations, July/August 2005
by: Mathew J. Levy, Esq.
Risk Reduction Measures Against OPMC Actions, July 2005
by: Michael J. Schoppmann, Esq.
Overzealous Investigators Placing Physicians at Risk, February 2005
by: Michael J. Schoppmann, Esq.
Medicare Fraud Alert Misconceptions: The Path to Prison?, Fall 2005
by: Steven I. Kern, Esq. and Michael J. Schoppmann, Esq.
Risk Reduction Measures Against State Board Actions, Fall 2005
by: Michael J. Schoppmann, Esq.
Understanding Estate Planning and Wills, Spring 2005
by: Mathew J. Levy, Esq.
Physician Risk Management in Fraud and Abuse, December 2004
by: Michael J. Schoppmann, Esq.
HIPAA Compliance: The Law Reality, and Recommendations, October 2004
by: Michael J. Schoppmann, Esq. and Denise L. Sanders, Esq.
Physicians Win Lawsuit, September 2004
by: Mathew J. Levy, Esq.
Understanding Asset Protection and Family Limited Partnerships, September 2004
by: Mathew J. Levy, Esq.
Understanding Physician Lease Agreements & The Anti-Kickback Statue, May-June 2004
by: Mathew J. Levy, Esq.
An Introduction to the OIG's Compliance Guidelines, April 2004
by: Michael J. Schoppmann, Esq.
Physician Compliance with Government Investigations, January-February 2004
by: Michael J. Schoppmann, Esq.
Health Plans Versus Physicians: New Legal Threats, December 2003
by: Michael J. Schoppmann, Esq.
The Need for OPMC Reform, September 2003
by: Michael J. Schoppmann, Esq.
Appellate Court Offers Best Reason for Tort Reform, June 30, 2003
by: Steven I. Kern, Esq.
New Supreme Court Rulings and Their Impact on Your Practice, June 2003
by: Michael J. Schoppmann, Esq.
Tort Reform-Statistics, Solutions and Strategies, June 2003
by: Michael J. Schoppmann, Esq.
HHS Provides Further Modifications to HIPAA Privacy Rules as Deadlines Approach, September 2002
by: Michael J. Schoppmann, Esq.
The Office of Professional Medical Conduct, June 2002
by: Michael J. Schoppmann, Esq.
HIPAA Privacy Rules: The Future Impact for Physicians?, September 2001
by: Michael J. Schoppmann, Esq.
HIPAA Privacy Rules Imposed As Mandatory for all Physicians, Summer 2001
by: Michael J. Schoppmann, Esq.
Sexual and Other Harassment in The Operating Room Setting, Winter 2001
by: Michael J. Schoppmann, Esq.
Medicare Fraud Alert Top Ten Ways to Avoid a Medicare Fraud Investigation, June 2000
by: Michael J. Schoppmann, Esq.
Physician Unions - The Myths and a Potential Truth, Summer 1999
by: Michael J. Schoppmann, Esq.
Searching For New Criminals for the Millennium?, May 1998
by: Michael J. Schoppmann, Esq.
Dramatic Increase In Numbers Of Medicare Audits
by: Steven I. Kern, Esq.
First Warrantless Searches - Now Jail!
by: Steven I. Kern, Esq.
Flurry of Proposed Regulations and Legislation Likely to Create New Hardships for Physicians
by: Steven I. Kern, Esq.
Government Investigations - How Bad Things Can Happen to Good Doctors
by: Robert J. Conroy, Esq.
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by: Steven I. Kern, Esq.
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by: Steven I. Kern, Esq. and Michael J. Schoppmann, Esq.
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by: Michael J. Schoppmann, Esq.
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OIG Compliance Program for Individual And Small-Group Physician Practices
by: Steven I. Kern, Esq. and Denise L. Sanders, Esq.
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by: Steven I. Kern, Esq.
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