LLC Versus Corp: Best Business Structure For Your Private Practice

Congratulations, you’re ready to formally start your company! We know this decision has come after months of brainstorming, planning, and preparing.

Making it official means one thing: you need to register your business with the state.

LLC Versus Corp: Which Business Structure Is Best For Your Private Practice?

This is one of the most popular concerns for nutrition and wellness professionals.

To help you figure out if you should file as an LLC versus Corp, we’re going to walk you through the key differences and highlight some resources to help you file your business!

Why Do I Need to File My Business With The State?

Choosing a business structure is necessary to protect your assets, to determine how and when you file your taxes, what (if any) business licenses you need, and what items you can deduct as business expenses.

There are two primary business structures you can choose between: incorporated or unincorporated business entities. The primary distinction is how you file your taxes.

Since every business is unique, it is always best to consult with your personal lawyer and/or accountant to determine what is best for your business.

Unincorporated Business Entities

Sole Proprietorships

Many nutrition and wellness professionals start their businesses as sole proprietorships. This is the easiest and least expensive way to run your business.

As a sole proprietor, your business is not a taxable entity. All business expenses, profits, and losses are recorded and filed with your annual individual tax return. You are responsible for paying self-employment tax, in addition to other personal taxes.

Partnerships

If you enter business with another individual you will likely form a partnership. General partnerships are for businesses in which two or more individuals own and operate a business together. Limited partnerships include a limited partner and a general partner. The limited partner invests in the business, while the general partner operates the business on a daily basis.

Partnerships are taxed as individuals, not as a business.

Incorporated Business Entities

Incorporating your business means that you are formally introducing your business as a separate entity from yourself. In other words, you’re forming a legal business structure. This is important to protect yourself, your assets, and limit your liability. In case you ever get sued, your personal assets are protected and separate from your practice assets. You should still have liability insurance.

By forming a legal business entity, you must file with your state, in adherence to state laws. There are fees and paperwork associated with this.

Therefore, many individuals just dipping their toes in private practice prefer to start as a sole proprietor. Believe it or not, you can get pretty far with your private practice pursuit before actually incorporating.

When the time comes, here are 3 indicators to confirm you’re ready to incorporate your business:

  1. You think of your practice as a business. This means you’ve thought about your marketing strategy and brand. Having a clear idea of these concepts before you incorporate means that you’re not spending significant time “post incorporation” with these early-stage tasks.
  2. You’re confident that private practice is the path for you. Incorporating a company will cost a few hundred dollars, plus some ongoing costs each year. The actual numbers will vary by state. Be sure you’re ready for that investment.
  3. You have a plan for success. This doesn’t mean that once you incorporate, clients will be flocking to you, but that you’ve considered your target audience, your specialty, and other differentiating factors that set your business apart from competitors. Plus, you have a plan for client acquisition.

Once you are ready to incorporate your practice, there are a few types of incorporated business entities to choose from. All corporations pay separate individual and business taxes.

C-Corporation

A C-corporation is a standard corporation. Most large, publicly traded companies with shareholders, are C-corps.

It’s likely not how you will file your private practice, however, for reference, here is some additional information about C-corps:

  • C-corporations offer the highest level of protection, separating business owners from personal liability
  • Highest cost to file and upkeep, compared to other business entities
  • Extensive tax implications
  • Requires thorough record keeping, internal processes, and comprehensive reporting
  • Suitable for private practices? Likely, not for those just getting started

S-Corporation, aka S Corp, aka “Subchapter Corporation”

An S corp, also known as a “Subchapter Corporation” is a type of corporation that lets you avoid the extensive taxes of a traditional C-corp. With an S-corp, you can pay yourself a salary, plus receive dividends from additional profits your corporation earns.

Here are more details about S-corporations:

  • Protects your individual personal assets
  • Tax Implications:
    • Taxes are filed on your income tax return
    • A business tax return must also be filed
    • Pre-tax expenses may be deducted
  • Requires formalities, including adopting bylaws, issuing stock, holding initial and annual director and shareholder meetings, and keeping meeting minutes with corporate records
  • Must file S-corp with the Internal Revenue Service (IRS), not just with the state
  • Suitable for private practices? Yes

Limited Liability Corporation (LLC)

LLCs are a combination of a partnership and corporation. According to the U.S. Small Business Administration, “LLCs can be a good choice for medium- or higher-risk businesses, owners with significant personal assets they want to be protected, and owners who want to pay a lower tax rate than they would with a corporation.”

Here are more quick facts about LLCs:

  • Protects your individual personal assets
  • Tax Implications:
    • Taxes are filed on your personal income tax return
    • Self-employment tax must be paid too
    • Business tax return only needs to be filed if more than 1 owner
    • Pre-tax expenses may be deducted
  • Many states allow you to file online, which saves time and money
  • Suitable for private practices? Yes

LLC Versus Corp

Although LLCs and S-Corps appear similar, the differences have implications on your yearly reporting requirements, tax filings, and corporate structure. Choosing the right structure for your business is important, which is why we suggest consulting your attorney and/or accountant.

Can I Change My Business Entity After I File?

Although it is possible to change the type of business entity once you register, it does require another filing. This means additional paperwork and fees. The Small Business Administration also warns that you can face tax penalties, limitations based on your location, and other consequences for re-filing.

So, LLC Versus Corp?

When you’re ready to incorporate your business, forming an LLC will be the way to go for 95% of nutrition entrepreneurs. Why? First, an LLC will offer you some distinct tax advantages. Second, there is less paperwork to manage, which is an important consideration, particularly when getting started as a party of one.

But there are a few exceptions. If you plan on raising significant outside capital or taking out loans to fund your business, you are better off choosing another corporation.

Of course, we recommend consulting a lawyer before finalizing your decision.

How Do I File?

Understand Your State’s Process

Depending on where you live, the process, requirements, and fees will vary.

Consult a Lawyer And/Or Accountant Or Work With An Agency Or Online Resource

This step is optional, but highly recommended as you think through operating agreements and other required documents to form your business.

If you are not working with a lawyer, resources like Legal Zoom can help you create your business, legally. Please make sure you’re getting the expertise and guidance you need and feel comfortable with. Most states also have filing agencies that will help you out.

Check out these resources for additional opinions and suggestions:

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