Whether you are a licensed physician, physician assistant or other health care professional, selecting the right entity and structure for your health care practice can set you on a path of compliance, flexibility, favorable tax treatment, and proper risk-management.
If you are starting a medical practice in Texas, your options include:
- LLPs – limited liability partnerships
- PLLCs – professional limited liability companies
- PAs – professional associations
Because Texas law prohibits the corporate practice of medicine, you will want to choose a legal structure that keeps you in compliance with the corporate practice of medicine doctrine and other rules and regulations, while managing liability.
Hendershot Cowart P.C. has been working with health care professionals on the successful setup of medical practices and health care enterprises – including physician practices, ambulatory surgery centers, freestanding emergency centers, diagnostic facilities, med spas and more – since 1987. When you are ready to form the relationship that will take your medical practice to the next level, call us at (713) 909-7323 for a consultation.
Professional Limited Liability Company (PLLC)
In Texas, a professional limited liability company or PLLC is nearly identical to a limited liability company (LLC) but applies only to businesses offering professional services from licensed practitioners, such as medical doctors, chiropractors, physical therapists, optometrists, licensed therapists, etc.
PLLCs provide limited personal liability for members, including those actively involved in management. This means that, absent limited circumstances, members cannot be held personally liable for the debts, judgments, or other obligations of the PLLC. A PLLC can also choose to pass through tax obligations to its shareholders so that profits are taxed as member income instead of corporate profits.
Another advantage of a PLLC is its flexibility. Like LLCs, PLLCs can be owned by one individual or several. Members may also structure the management of the company to suit their needs without the rigidity or formalities of a corporation. That does not mean that members of a PLLC should not have any governance in place. A well-prepared operating agreement can mitigate risk and prevent future disputes by addressing compensation plans, buy-in arrangements, bonus structures, exit strategies, buyout formulas, and compliance planning.
Professional Associations (PA)
Professional Associations in Texas are similar to corporations but created as a distinct entity based on the Texas Medical Association’s belief that the doctor-patient relationship should not be practiced through a “purely corporate entity.” So, the Texas Legislature created Professional Associations to allow licensed physicians to form an association with the same liability protections as a corporation.
As with a PLLC, PAs may be formed by one individual or multiple professionals. PAs also limit members’ liability for claims or judgments against other members of the association, although each member is still personally liable for their own malpractice.
Since PAs more closely resemble corporations, they are taxed and governed accordingly. PAs must be governed by a board of directors or executive committee elected by members of the association. And profits may be taxed as either an S corporation (which passes through income to members) or C corporation (subject to double taxation).
Limited Liability Partnership (LLP)
Another entity choice for health care professionals is the limited liability partnership or LLP. Unlike PLLCs or PAs, limited liability partnerships do require at least two partners. Like the other entities, and as the name implies, LLPs limit each partner’s liability to the partnership’s assets. If you or your partner faces a medical malpractice lawsuit, for example, your personal assets will not be at stake – only your contributions to the partnership.
With regards to tax treatment, LLPs are pass-through entities, similar to PLLCs: profits flow through to the partners who pay personal income tax on their share.
What If I Am Not a Physician?
Non-physicians cannot practice medicine in Texas, but physicians can hire non-physicians (or form agreements with non-physician entities, such as a management services organization, or MSO) for certain tasks, like administration and office space. If you are a non-physician healthcare provider seeking to do business with a physician, you will need to create a joint venture or entity that adheres to all the special requirements in the Texas Business Organizations Code.
For more information about starting a joint venture or management services organization, please consult an attorney.
Can a Physician Assistant Own a Medical Practice?
Physician assistants may hold a minority ownership interest in a PA, PLLC, or LLP but a physician or physicians must control and manage the entity in compliance with the Prohibition Against the Corporate Practice of Medicine. For a PA or PLLC, this further means that a physician assistant may not serve as an officer in addition to other limitations described by the Texas Physician Assistant Board.
Get Help With Entity Formation
Each medical practice is unique when it comes to expected liability and tax obligations. A med spa owner, for example, may have different concerns than an orthopedic surgeon. Even a physician who is just starting out may have different goals than someone who has been in practice for a long time.
The type of legal structure you choose will depend on the details of your practice, the amount of liability you expect to face, and your tax obligations. Before starting a medical practice in Texas, consult with a health and medical law attorney to choose the best legal structure for your unique situation.
At Hendershot Cowart P.C., we get to know you and what matters most. We have over 100 collective years of quality legal representation, and we strive to exceed your expectations.
We encourage you to get to know our firm – call us at (713) 909-7323 or contact us online to schedule an appointment today.