Conducting a medical practice either as a sole proprietor or as a partner in a medical partnership each has its benefits; however, operating a medical practice as a certified medical corporation also has its benefits.
Due to the stringent legal requirements that must be met, forming a professional corporation can be a challenging endeavor. These legal requirements must be met under the statutes of both the state and the federal governments. Healthcare business attorney California corporations have some benefits, each of which is broken down into more specific examples further down this page.
What Exactly Is A Medical Group?
It is legal in California to set up a professional healthcare corporation solely to engage in the practice of medicine. The Summary of the content Professional Corporation Act, the California Companies Code, and the Medical Board of California regulate California’s professional medical corporations.
As A Patient, What Can You Expect From A Medical Corporation?
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Constitutional Security
A medical corporation separates personal assets into separate business assets, reducing personal liability in case of lawsuits or creditors. Doctors’ assets may be protected from the doctors’ negligence claims and some commercial claims or employee-related litigation when a professional corporation is adequately constituted and maintained. Still, it will not shield a doctor from medical malpractice (professional liability). For a doctor who owns a medical practice, this is very vital.
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Credit For Business
When it becomes time to join a partnership and sell your business, having a credit history under a qualified medical organization can be advantageous. It may also circumvent the necessity of a personal guarantee.
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Accounting
Profits and losses are passed on to shareholders instead of being taxed twice by your qualified medical organization as an S-Corp. Additionally, S-Corp stockholders who receive dividends benefit from lower self-employment taxes.
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Intangible Perks
A professional medical firm offers health insurance and pension programs.
Is There Anything Else Required To Form A Medical Organization?
The process of forming a qualified medical corporation requires several processes. There are naming restrictions enforced by the Secretary of State that professional organizations must adhere to approve for incorporation. Statutory instruments must be developed and submitted to the Minister of State when a proper name for the business has been selected.
As a further step, the bylaws of a corporation must be drawn up, which outline its structure and govern its operations.
Included in these steps are:
- We are organizing a new company’s first shareholders’ and directors’ meetings.
- We request and receive an Employer Identification Number (EIN) from the IRS.
- Getting a business bank account set up.
- We are filing for S-Corp status with the Internal Revenue Service (if applicable).
- We are notifying the Sec of State of a declaration of information.
- We are obtaining a business license.
We are obtaining a fictional company name (if applicable).
Professional Medical Corporations Are Subject To Taxation
C-corps and S-corps are two options for medical professional corporations regarding taxation. All California medical professional corporations are C-corps by default unless they choose to be S-corps, which are subject to a lower tax rate.
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A C-Corp
The corporate tax rates of the state governments apply to the net income of a Californian professional medical corporation. Any dividends paid to shareholders must be reported and taxed by the shareholders themselves. A prevalent misconception about dividend taxes is that it is “double taxation” because the money is taxed twice: once at the company level and once at the shareholder level.
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S-Corp
When it chooses to be an S-Corp, a qualified medical corporation is treated as a take entity for federal income tax. Instead of being taxed there at the corporate level, business income, deduction, loss, and tax credits are passed through to shareholders, thus avoiding multiple taxations.
Managing A Medical Practice As An Independent Professional Corporation
A healthcare corporation must segregate its bank accounts from that of its owners to insulate the shareholders from responsibility if the evifcal corporation cannot pay its creditors or is sued. Furthermore, any reimbursements should be sent to the healthcare company, with all payments made to the corporate entity and not the stockholders. Medical corporations should ensure that all corporate business is conducted in the corporate name, not in the individual’s personal information of any member, officer, or shareholder.