Business Entity Regulations Pertaining to a Medical Practice in the State of Florida
Essay Preview: Business Entity Regulations Pertaining to a Medical Practice in the State of Florida
Report this essay
Business Entity Regulations Pertaining to a Medical Practice in the State of Florida
While no organization is absolutely correct for any business or situation, there are characteristics of the laws that apply to each that would suggest one form would be a better fit. First decide which legal form of business organization will be the most advantageous. In the state of Florida businesses are established into one of three legal forms: the sole proprietorship, the partnership, or the corporation. The legal form chosen is contingent on the organizations funding requirements, legal restrictions, and amount of liability inherent in the business, the nature of the business, the number of employees, tax considerations, and perpetuation of the enterprise (DBPR, n.d., p. 2)
The author of this paper works in a medical practice residing in the state of Florida. This organization is a corporation, and formed its business as a Professional Practice Entity. All states permit professionals such as physicians, accountants, lawyers, and dentist to incorporate their professional practices.
These practices have a number of options as to their form of business entity such as, Professional Corporations (P.C.s), these provide limited liability for general business debts but not for the professionals own malpractice, and no limited liability for malpractice of fellow practitioners in the firm. They may be C corps or S corps, which are subchapters of a corporation. Unlike many other C corps, a P.C. C corp. can use the cash method of accounting, which is used in the medical practice of this author. The professional corporation is identical to a business corporation in most respects. A P.C. is formed only by filing with the secretary of state, and is managed by a board of director, unless a statue permits a P.C. to be managed like a partnership. This rigid management structure makes the professional corporation inappropriate for some smaller professional practices. While professional shareholders have no personal liability for the obligations of the professional corporation, such as a building lease, the P.C. retain unlimited liability to their clients for their professional malpractice. Only professionals holding the same type of license to practice a profession may be shareholders of a professional corporation. For example, only physicians licensed to practice medicine may be shareholders of a professional corporation that practices medicine. The duration of a corporation is unaffected by death or withdrawal of a shareholder, and both the corporation pays federal income tax, and shareholders are taxed on dividends, this is known as double taxation (Mallor, 2003).
A second option for this type of entity is Limited Liability Company (LLC). The state of Florida allows professionals to practice in LLCs either under general LLC law or a special Professional Limited Liability Company law (PLLC). In either case liability is not limited for the professionals own malpractice but may be limited for the malpractice of other firm members and for other firm debts. These LLCs share the comparative advantages, and minor disadvantages of other LLCs. LLCs form by agreement of owners and must comply with limited liability company statute. LLCs duration is usually unaffected by death or withdrawal of a member and is managed by managers or its members. Owner liability is limited to capital distribution, there is no transferability of owners interest, unless otherwise agreed. LLCs members are usually the only ones paying federal income tax, but LLCs may elect to be taxed like a corporation (gofso.com, n.d., p. 9).
A third option for a professional practice entity is Limited Liability Partnerships (LLPs). LLPs are general partnerships whose general partners have limited liability. They are designed for professional practices. A partner is liable for his or her own malpractice but not for a partners malpractice. Typically they are required by state law to maintain malpractice insurance but it is not required to maintain malpractice insurance in the state of Florida, however if a practitioner chooses not to carry malpractice insurance he or she must carry a bond. LLPs are to pay a per-partner fee to keep their status but are not subject to entity level tax. LLPs formation is by agreement of owners, and must comply with LLP statute. The duration of this entity is usually unaffected by death or withdrawal of a partner, is managed by partners, and owner liability is mostly limited to capital contribution. There is no transferability of owners interest, and usually only partners pay federal income tax, but LLPs may elect to be taxed like a corporation.
The fourth option is Sole Proprietors (SP) and Partners (P), also known as General Partnerships (GPs). Many practitioners choose to practice as sole proprietors or partners, rather than in a limited liability entity. Physicians reason that his or her main exposure to liability is to malpractice claims, and the entity will not protect against claims for their own malpractice. Practitioners therefore choose to rely on malpractice insurance. This form of business organization is the least expensive way to begin. Simply find a location, pay the license fees and any county and state fees, and open the door. Due to ease of starting, a business owner may begin with a sole proprietorship then switch to another form of business later. With a SP or Partnership entity owner liability is unlimited, and subject to single federal income taxation whether it be the sole proprietor in SP, or only the partners being taxed in a partnership. Advantages of a partnership can include the exponential value of more than one opinion, additional sources of capital, and a potentially better credit rating for the business. Some disadvantages involve the difficulty of getting rid of an ineffective or corrupt partner and the potential for blurring lines of authority and responsibility (Mallor, 2003, chap. 37)
The Department of Business and Professional Regulation (DBPR) no longer regulates medical professions, the funeral industry, professional engineers, or the investigative and prosecutorial functions of the Board of Architecture and Interior Design. Regulation of the medical field is provided by the Florida Department of Health, and they