Partnership and LLC

This can be relatively easy to set up, but it's important to clearly define responsibilities within a partnership.

Planning

Partnership and LLC

A chiropractor who wishes to enter a more formal business arrangement with another chiropractor may decide to form a corporation, a limited liability company (LLC) or a practice partnership. With a partnership, there is one practice. The partnership bills all of the patients and pays all the expenses. Profit from the partnership is divided among the doctors according to agreed-upon compensation formulas.


Benefits of Partnership

While there are obvious benefits, such as sharing expenses, space and equipment, probably the most pronounced advantage of forming a partnership is the potential tax benefits. The partnership files a partnership income tax return, but it pays no tax on the partnership income. The partnership income is allocated to personal income (in accordance with the partner's compensation agreement) and reported on their personal income tax form.

With a partnership, Sub-S and LLC, there are certain tax benefits to the partners. These benefits include investment tax credit, depreciation and contributions.

Issues to Consider

A principle disadvantage of a partnership is that it exposes the partners to virtually unlimited liability. For this reason, many group practices have incorporated their practice. In recent years, these practices have been given another option in many states: the LLC. An LLC is an entity treated like a corporation for liability purposes and like a partnership for tax purposes. To some, it represents the best of both worlds.

Some chiropractors form partnerships while their partners remain in professional associations (P.A.s) because they wish to maintain corporate benefits such as corporate pension plans and medical reimbursement plans. Due to the potential for abuse in such an arrangement, the government has strict regulations governing partnerships of professional associations.

If a partnership or corporation is formed to conduct a group practice or to share expenses, the practice must adhere to the same taxation and recordkeeping issues as an individual incorporating.

Transitions in a Partnership

A major consideration when more than one person owns the practice, such as in a partnership or corporation, is how to handle an owner’s death, retirement or departure from the practice. To ensure a smooth transition during a change in ownership, a written agreement should be structured with the help of an attorney or an accountant to cover all the legal and tax issues.

Crafting an estate plan that provides for some key man life insurance coverage or other mechanism to ensure an orderly transition can be beneficial. With this type of coverage, an owner's interest in the practice can be purchased or sold without creating any financial strain on the other owners or the practice.

The SBA provides an overview of the pros and cons of this type of business legal structure here. 

Get Professional Advice

Since there are a myriad of legal and tax issues that go along with setting up your business legal structure seek the proper accounting and legal advice from your practice support team.

PLEASE NOTE: The overviews and comparisons provided as links to this article are intended as general information only and may not include the latest developments. Check with your accountant or attorney for up-to-date information about which structure makes the most sense for your individual situation.


The information in the NCMIC Learning Center is offered solely for general information and educational purposes. It is not offered as, nor does it represent, legal or professional advice. Neither does this information constitute a guideline, practice parameter or standard of care. You should not act or rely upon this information without seeking the advice of an attorney familiar with the specific legal requirements of the state(s) in which you practice. If there is a discrepancy between the site and an insurance policy you have with NCMIC, the policy will prevail.