Physician LLC: All You Need to Know

July 24, 2020July 24, 2020
Physician LLC: All You Need to Know

So you’ve decided it’s time to look into opening up your own medical Limited Liability Company, or LLC, for your practice. It’s a big decision and bound to be an exciting journey to run your own business entity. Maybe you’ve already been working on your own as an independent contractor or with a partner in a general partnership and a lot of going out on your own private practice will be familiar to you. Or perhaps you’ve been working as an employee for someone else and finally are looking into going in on your own and being your own boss. 

Whatever your history and no matter the road that brought you to thinking about starting a physician LLC, you’re right to do a lot of research in advance. There are a lot of ins and outs to running your own company that you need to keep track of and some options you have at the outset. In this guide, we’ll take you through all the terminology you need to know and introduce you to the world of Professional Limited Liability Companies (PLLCs) in the United States.

That being said, we do recommend that you always consult with a legal and financial professional before making any major business decisions. Your lawyer and CPA will be able to provide you with step-by-step advice on what is best for your unique situation and your business goals.

Before we get too deep into the definitions and explanations, it’s important to note that in some states, like California, professionals are prohibited from operating LLCs or PLLCs. So if you plan to start a practice in the Golden State, you’ll need to look into Professional Corporations instead.

What Is a Physician LLC?<

Anyone can start a regular LLC to run a business like a coffee shop or marketing service, however, if you’re a licensed professional, you need to start a Professional Limited Liability Company instead.  Of course, a doctor is more than welcome to open an LLC and run a coffee shop, but if you want to practice medicine you’ll need a PLLC. Note, all members of your PLLC must be licensed to practice. See e.g., NRS 89.230; Tex. Bus. Code § 301.006. Overall, an LLC and PLLC are similar, but there are some key differences we’ll point out to you.

Liability is a term that is really important when discussing LLCs—it’s in the name, after all. This is the main reason most people switch from sole proprietorships and partnerships to LLCs or corporations. Limiting your liability through incorporation means that you legally separate yourself as the owner of the business. By and large, you are no longer personally responsible for debts incurred by the business, should the company get sued or not be in a position to return startup loans.

Further, PLLCs will limit your liability to malpractice claims arising from acts by your other members. No business structure will be able to shield you personally from a patient filing a malpractice suit against you, however, if one of your partners in the practice organized as a PLLC is sued, it won’t impact your personal finances.

Another great aspect of LLCs and PLLCs is their flexibility when it comes to taxation.  The default taxation for them is called “pass-through” taxation, which enables the company’s profits to flow through to the owners as salary and distributions without being taxed at the corporate level. You only pay taxes as personal income this way and avoid the double taxation that many corporations have to deal with. However, LLCs do have the option of filing as C Corps or S Corps, if they choose to.

How Do You Start a Physician LLC?

It’s important to keep in mind that because LLCs are registered with the state they are founded in and for this reason, the process varies slightly from state to state. Make sure to look up or consult with an attorney familiar with the specific state regulations for LLCs and PLLCs when you decide where you will found your LLC. 

Note, it’s not necessary to form your LLC in the state where you will operate, however, having a “foreign LLC” involves more fees and paperwork that needs to be filed.

Below, we’ll provide a general outline of the process needed to get your PLLC up and running, but, again, it may vary depending on where you are. The process is relatively straightforward and a lot simpler than starting a corporation—which is another reason they’re popular with small business owners and professionals. 

1. Choose a Unique Name

You’ll need to pick a name that is available in your state. Most states require medical professionals’ PLLC to be composed of the first or last name and professional abbreviation—James Kim, MD, for example. If you want to operate under a fictitious name, something like “Sunshine Medical'' instead of a member’s name, you will need to apply for a permit from your state’s Medical Board.

2. Designate a Registered Agent

Your company’s Registered Agent is someone, or it can be a company, who will be the official point of contact with the state. They need to be resident in the state and will be the ones who receive all the government or legal correspondence. See e.g., Del. C. § 132; NRS 78.090; Tex. Bus. Code § 5.201(b); W.S. 17-28-101(a)(ii).

3. File Your Articles of Organization

In this document, you will provide your business name, basic information including your main address and business purpose. 

You will need to file your Articles of Incorporation with the state and with your state’s Medical Board. The Medical Board will generally need to verify that all members, or owners, in your PLLC are licensed to practice medicine.

Once this is filed with your state’s Secretary of State, your PLLC will officially be formed according to state law.

4. Obtain an EIN

Your Federal Tax ID number, or Employer Identification Number, is necessary to file taxes, hire employees, and will be used on countless business forms. Think of it as your company’s Social Security number. It’s free from the Internal Revenue Service (IRS) and you should get one as soon as possible so this small detail doesn’t slow down building up your business and hiring on staff.

5. Make an Operating Agreement

Although not required in most states, you’re going to want to have an Operating Agreement in place for your Professional LLC. What this document does is establish the procedures and regulations your company will follow. It will ensure that all your members are on the same page and there are no misunderstandings down the road. Some of the important points usually covered in Operating Agreements are:

  • Management structure

  • Member investments

  • Business taxation

  • Voting

  • Membership transfer

  • Profit and loss distribution

  • Dissolution

Even if you’re opening up a medical practice on your own, it’s still highly recommended to have an Operating Agreement in place. It will give you credibility in the eye of the government should your company ever need to appear in court and oftentimes banks will ask for a copy before allowing you to open a business bank account or take out lines of credit. Further, you may be a company of one for now, but at some point, you may decide to bring in a partner or more. In that case, you will be glad you have an Operating Agreement in place that spells out how you want things to work in your company.

The few states that do require all LLCs and PLLCs to have Operating Agreements don’t require you to file them with the state. They also don’t provide a specific format for what needs to be included; rather, state statutes usually indicate the provisions and rights you cannot alter or eliminate, therefore it is highly advisable to have a lawyer involved when drafting your Articles. While you can surely define everything yourself, a lawyer will be able to look over it and make sure the proper language was used to prevent any misinterpretations and that it does not violate the law. 


The steps to setting up a PLLC are just about as straightforward as the LLC. You just need to be aware of your professional governing body’s regulations in your state. Ensure every member has a valid license to practice at all times and establish a protocol in your Operating Agreement in the event that a member is suspended by the Medical Board, loses their license to practice altogether, or passes away.

In many cases, a PLLC may even lead you and your members to a lower tax rate overall. In order to figure all this out, be sure to consult with an accountant who will be able to assist you in figuring out which of the income tax structures will work best in your case. The beauty of LLCs and PLLCs is their tax flexibility, which gives you more options than other structures like sole proprietorships or corporations.

While running a PLLC is a lot simpler than running a Professional Corporation, there are still procedures that need to be followed that can vary depending on where you are operating. It is a good idea to have a consultation with a lawyer in your area who will know the ins and outs of opening a physician’s LLC and be able to help you as you set up your company. After all, you studied medicine and not law, so if you want to minimize your stress levels, leave the paperwork up to the legal experts. 


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