Choosing the Right Medical Practice Business Structure: LLC, PC, PLLC, and S-Corp Compared

Why the Corporate Practice of Medicine Doctrine Decides This Question Before Tax Strategy Does, and How to Work Through Both Decisions

Introduction: The Question Most Physicians Ask Backward

Physicians planning a practice almost always frame the entity question the same way: LLC or S-Corp? It is the framing that general small-business advice supplies, and it is the framing most online comparison articles adopt.

For a medical practice, it is the wrong starting point, and it skips the constraint that actually governs the answer.

In most states, a physician cannot operate a clinical practice as a standard LLC at all. State law requires a professional entity: a professional corporation or a professional limited liability company, owned by licensed physicians. The reason is the corporate practice of medicine doctrine, and it removes several of the options that a generic comparison would present as live choices.

The second problem with the usual framing is that it compares things that are not comparable. An LLC is a legal entity created under state law. An S-Corporation is a federal tax election. They are not alternatives to one another. A PLLC can elect S-Corp taxation. A PC can elect S-Corp taxation. Asking whether to be an LLC or an S-Corp is a little like asking whether to buy a sedan or an automatic transmission.

Framed correctly, there are two decisions. First, which legal entity does your state permit you to use for the practice of medicine? Second, how should that entity be taxed? The first is largely determined by state law and is often narrower than physicians expect. The second is where genuine planning happens, and where the money is.

This guide works through both, along with what liability protection actually does and does not cover, the 2026 tax landscape following the One Big Beautiful Bill Act, governance considerations for multi-physician practices, and how the structure chosen today affects a sale or private equity transaction years from now.

The Corporate Practice of Medicine Doctrine Comes First

The corporate practice of medicine doctrine, commonly abbreviated CPOM, holds that a corporation or unlicensed person may not practice medicine and may not employ a physician to practice medicine on its behalf. Its stated rationale is that clinical decisions should rest with licensed professionals rather than being influenced by non-physician owners whose interests may diverge from patient needs.

Roughly two-thirds of states recognize CPOM in some form, with widely varying enforcement. Several states enforce it strictly, including California, Texas, New York, and North Carolina. Others recognize it weakly. A small number have no meaningful doctrine, though they may still regulate related conduct such as fee-splitting.

What This Means Practically

In CPOM states, the entity that holds the right to practice medicine must be owned by licensed physicians, and only professional entities may deliver professional services. This is why most states bar physicians from using a standard LLC for clinical practice and require a PC or PLLC instead.

How Restrictive It Gets

The variation across states is substantial and the details matter.

• New York requires medical practices to be owned by physicians, without exceptions.
• California, under the Moscone-Knox Professional Corporation Act, prohibits general stock corporations, LLCs, and limited partnerships from practicing medicine or employing physicians to deliver medical services. Physicians must hold at least 51 percent of shares in a professional medical corporation, and the remaining shares may be held only by professionals in specifically enumerated licensed categories. Unlicensed individuals, including family members and outside investors, are categorically barred from any ownership interest.
• Georgia repealed its standalone prohibiting statute in 1982, but its Professional Corporation Act permits only licensed professionals actively practicing in the state to be shareholders of a professional corporation organized to provide medical services.
• Some states allow other licensed professionals, such as physician assistants or nurse practitioners, to hold minority ownership, often subject to a physician majority requirement.
• Florida has no CPOM doctrine, though fee-splitting and related restrictions still apply.

The Operating Assumption

Assume your state restricts ownership until you have confirmed otherwise. For a solo physician forming their own entity, CPOM is usually satisfied by definition, since a licensed physician owning their own professional entity is exactly what the doctrine contemplates. It becomes a live constraint the moment non-physicians, outside investors, or multi-state structures enter the picture, and it is the reason the answer to “what entity should I form” begins with your state’s professional entity statute rather than with a generic comparison chart.

Two Separate Decisions: Legal Entity and Tax Election

Keeping these straight resolves most of the confusion in this area.

Decision One: The Legal Entity

Formed under state law by filing with the Secretary of State. It determines who may own the practice, what governance formalities apply, how liability is allocated, and what the practice is called. For a medical practice this is usually a PC or a PLLC, and the available options are set by your state’s professional entity statutes.

Decision Two: The Tax Election

Made with the IRS, and largely independent of the entity choice. Both a PC and a PLLC can elect to be taxed as an S-Corporation. A PLLC may alternatively be taxed as a sole proprietorship or partnership by default. A PC defaults to C-Corporation treatment unless an S election is made, which is a meaningful trap discussed below.

Why the Distinction Matters

Physicians frequently believe they must choose between the liability characteristics of one option and the tax characteristics of another. In most cases they can have both, because the two decisions are made separately. Where the state permits both PC and PLLC formation, the practical difference between them is corporate formality and default tax treatment, not clinical capability or fundamental liability protection.

Who Does What: Assembling the Right Advisory Team

Entity selection sits at the intersection of three professions, and physicians frequently ask one of them to answer a question that belongs to another. Understanding the division of labor saves time, money, and a meaningful amount of avoidable risk.

The Healthcare Attorney

Only a licensed attorney can practice law, and several of the decisions in this article are legal decisions.

An attorney licensed in your state is the person who:

• Determines what the corporate practice of medicine doctrine permits in your state and how it applies to your specific situation
• Identifies which professional entity forms are available to you under state professional entity statutes
• Forms the entity, prepares and files articles of incorporation or organization, and satisfies any medical board registration requirements
• Drafts the operating agreement, bylaws, shareholder agreement, and buy-sell provisions
• Drafts and negotiates employment agreements, restrictive covenants, and physician buy-in documents
• Renders legal opinions on liability exposure, regulatory compliance, and transaction structure
• Structures MSO arrangements and reviews management services agreements

The Accountant and Practice Management Consultant

The financial and operational side of the decision belongs here.

Your accountant and practice management consultant are the people who:

• Model the financial consequences of each available tax election against your projected income
• Analyze and document reasonable compensation using specialty and regional benchmark data
• Project the interaction between compensation, retirement plan contributions, and the qualified business income phase-out
• Prepare and file the entity and individual tax returns once the structure is in place
• Build the chart of accounts, financial reporting, and profit center structure that a multi-owner compensation formula depends on
• Advise on the operational and economic implications of governance and compensation arrangements the attorney will document

Where the Two Overlap

The productive pattern is sequential and iterative. The attorney establishes what is legally permitted, which narrows the field. The accountant models the financial outcomes across the permitted options. The physician chooses. The attorney then documents the choice in properly drafted governing instruments, informed by the economic terms the accountant helped design.

Problems arise when this sequence collapses. A physician who forms an entity online without legal review may end up with an entity type their state does not permit for medical practice. A physician who forms a PC on an attorney’s advice without tax modeling may end up in C-Corporation status by default. A group whose compensation formula was drafted without accounting input frequently discovers the formula cannot be administered from the financial data the practice actually produces.

A Note on DoctorsManagement's Role

DoctorsManagement is a healthcare consulting, accounting, and auditing firm. It is not a law firm and does not practice law. We do not form entities, draft operating agreements or shareholder agreements, render legal opinions, or advise on whether a particular structure satisfies your state’s corporate practice of medicine requirements. Those are legal services and they require a licensed attorney.

What we do is the financial and operational half of the analysis, and we work alongside your attorney rather than in place of one. The section near the end of this article describes that scope precisely.

The Professional Corporation (PC)

The professional corporation, sometimes called a professional association or PA depending on the state, is the traditional entity for physician practices and remains the required or default form in a number of states.

Characteristics

• Formed under the state’s professional corporation act
• Ownership restricted to licensed professionals, frequently limited to the same profession
• Governed by a board of directors with officers, requiring corporate formalities
• Ownership expressed as shares of stock
• Defaults to C-Corporation tax treatment; an S election must be made affirmatively

Corporate Formalities

PCs carry more procedural obligation than PLLCs: bylaws, annual meetings, documented minutes, board resolutions for significant actions, and stock records. These are not merely administrative. Corporate formalities are part of what preserves the liability shield, and courts examining whether to disregard the entity look at whether formalities were observed.

Where the PC Fits

The PC is the right choice where state law requires it, where the practice anticipates multiple physician shareholders and wants the well-developed corporate governance framework that comes with stock, share transfers, and buy-sell mechanics, or where a future transaction is likely to favor a corporate form.

The Professional Limited Liability Company (PLLC)

The PLLC is the professional-entity analogue of the LLC, available in most but not all states.

Characteristics

• Formed under the state’s LLC act, with professional entity provisions applying
• Ownership restricted to licensed professionals, as with the PC
• Governed by an operating agreement rather than bylaws, with substantially more flexibility
• Ownership expressed as membership interests
• Defaults to pass-through treatment: disregarded entity for a single member, partnership for multiple members; an S election is available

The Flexibility Advantage

The operating agreement can allocate management authority, profit distributions, and voting rights with considerably more freedom than corporate structures generally permit. For practices where physicians contribute differently, whether in capital, patient volume, administrative role, or call coverage, this flexibility has real value.

Lighter Formality Requirements

PLLCs typically require fewer ongoing formalities than PCs. This reduces administrative burden, though it should not be mistaken for an absence of obligation. The operating agreement still needs to exist, be followed, and be updated as the practice changes.

Where the PLLC Fits

The PLLC is often the better choice for solo physicians and small groups in states that permit it, particularly where the practice values operational flexibility and wants to avoid corporate formality overhead. Its default pass-through treatment also avoids the C-Corporation default problem that catches PC owners.

The Standard LLC and Why It Usually Is Not Available

The standard LLC is the default recommendation in general small-business guidance, and for most businesses it is a sound one. For clinical medical practice it is usually unavailable.

In CPOM states, an unlicensed entity may not practice medicine or employ physicians to do so. A standard LLC formed through the ordinary filing process is an unlicensed entity. Attempting to operate a clinical practice through one in a state that requires a professional entity can create licensing exposure, contract enforceability problems, and complications in any future transaction.

Where a Standard LLC Does Appear

Standard LLCs are commonly used alongside a practice for functions that are not the practice of medicine:

• Real estate holding. Where physicians own the building, an LLC holding the real estate and leasing to the practice is a common and generally sound structure that separates the property from practice liability.
• Equipment holding. Similar logic, though the tax analysis differs and should be evaluated.
• Management services organizations. Discussed further below.
• Non-clinical ancillary ventures. Businesses that do not involve the practice of medicine may often use standard entities, subject to fee-splitting and referral-relationship analysis.

The distinction that matters is whether the entity is practicing medicine. Entities that hold assets or provide administrative services generally are not; entities that employ physicians to deliver clinical care generally are.

The S-Corporation Election

The S-Corporation is a federal tax election, not an entity type. It is available to both PCs and PLLCs that meet the eligibility requirements, and it is the most common tax structure for physician practices.

The Core Mechanic

An S-Corp owner who works in the business must be paid reasonable compensation as a W-2 employee. Profits distributed beyond that reasonable salary are not subject to self-employment tax. In a sole proprietorship or a partnership-taxed entity, by contrast, the owner’s entire net income is generally subject to self-employment tax.

The planning opportunity is the gap between reasonable compensation and total profit. Payroll taxes apply to the salary; the distribution portion escapes them.

The Reasonable Compensation Constraint

This is the element practitioners most often get wrong, and it is where audit exposure lives. Compensation must be reasonable for the services actually performed. A physician generating substantial clinical revenue who pays themselves an implausibly low salary in order to maximize distributions is taking a position the IRS regularly challenges and frequently defeats.

Reasonable compensation should be supported by reference to specialty and regional compensation benchmarks, the physician’s actual clinical productivity, hours worked, and the roles performed. The analysis should be documented rather than assumed, and it should be revisited as the practice’s economics change.

Eligibility Requirements

• No more than 100 shareholders
• Shareholders generally must be individuals who are U.S. citizens or residents
• Only one class of stock, which constrains differential economic arrangements among owners
• Timely filing of the election

The Single Class of Stock Limitation

For multi-physician practices contemplating tiered ownership, differential distributions, or preferred returns to founding partners, the single class of stock requirement is a genuine constraint. Partnership taxation permits allocation flexibility that S-Corp status does not. This trade-off between payroll tax savings and allocation flexibility is one of the more consequential decisions a growing group makes.

The C-Corporation and the Personal Service Corporation Trap

C-Corporation treatment means the entity pays tax on its income and shareholders pay tax again on distributions. This double taxation is generally unattractive for a practice that distributes most of its earnings.

The Default Problem

A professional corporation defaults to C-Corporation treatment unless an S election is filed. Physicians who form a PC and do not make the election, or who miss the filing deadline, may find themselves in C-Corp status without having chosen it. This is one of the more expensive unforced errors in practice formation and it is entirely preventable with competent guidance at formation.

Personal Service Corporation Status

A C-Corporation whose principal activity is performing services in health, and whose services are substantially performed by owner-employees, may be classified as a personal service corporation. Historically PSCs faced a punitive flat corporate rate. Following corporate rate changes the disparity narrowed, but PSC classification carries other consequences including limitations on accounting method and fiscal year selection.

When C-Corp Treatment Might Be Considered

Rarely for a straightforward clinical practice. It may enter the analysis where the practice intends to retain substantial earnings for expansion rather than distribute them, where certain fringe benefit treatments are valuable enough to outweigh the double taxation, or in specific transaction structures. These are situations that warrant modeling with a CPA rather than a default.

What Liability Protection Actually Covers

This is the most consistently misunderstood aspect of entity selection, and the misunderstanding runs in the direction of overconfidence.

What the Entity Does Protect

• Business debts and contractual obligations of the practice, including leases, vendor agreements, and loans that were not personally guaranteed
• Employment claims against the practice
• Premises liability, such as a patient injured in the waiting room
• Malpractice claims arising from another physician’s clinical conduct, where you were not personally involved and did not negligently supervise

What the Entity Does Not Protect

• Your own clinical malpractice. A physician remains personally liable for their own professional negligence regardless of entity form. No professional entity shields a clinician from their own clinical acts. This is the point most frequently misunderstood, and it is why malpractice insurance is the primary protection against clinical liability and the entity is not.
• Personally guaranteed obligations. Landlords and lenders routinely require personal guarantees from physician owners of new practices. A guaranteed obligation is a personal obligation.
• Unpaid payroll taxes. Responsible persons face personal liability for trust fund taxes withheld and not remitted.
• Your own fraudulent or criminal conduct, including healthcare fraud and abuse violations. Entity form provides no protection against False Claims Act liability, Anti-Kickback Statute exposure, or program exclusion.

Piercing the Veil

Liability protection depends on maintaining genuine separation between the practice and the owner. Courts disregard entities where owners commingle personal and business funds, fail to observe required formalities, undercapitalize the entity, or treat its assets as personal property. An entity that exists on paper but is operated as an extension of the physician’s checkbook provides substantially less protection than its owner assumes.

Maintain separate bank accounts, document distributions properly, observe the formalities your entity type requires, and keep the operating agreement or bylaws current and followed.

Tax Considerations for 2026

The One Big Beautiful Bill Act, signed in July 2025, reshaped several provisions that bear directly on entity and compensation planning for physician practices.

Section 199A Made Permanent

The 20 percent qualified business income deduction for pass-through entities is now permanent, eliminating the prior sunset. For pass-through practices this removes a significant planning uncertainty.

The SSTB Problem

The IRS classifies health as a specified service trade or business. This covers physicians, dentists, and other licensed healthcare providers, and it means the QBI deduction phases out as taxable income rises rather than being available at all income levels as it is for non-SSTB businesses.

A software company owner with $1 million of pass-through income may claim a QBI deduction subject to wage limitations. A physician with the same income generally receives nothing.

The 2026 Phase-Out Ranges

OBBBA widened the phase-in ranges, from $100,000 to $150,000 for joint filers and from $50,000 to $75,000 for others. With inflation indexing, the 2026 phase-out for married filing jointly runs from roughly $400,000 to roughly $550,000 of taxable income, with the single-filer range roughly half those figures. Below the lower bound the full deduction is available; above the upper bound an SSTB receives none; within the range it phases down on a sliding scale.

Published figures for the exact 2026 thresholds vary across sources, and they are indexed annually. Confirm current numbers with your CPA before relying on them for planning. The structural point is stable: the deduction is phased out for higher-earning physicians, and taxable income is the lever.

Why This Creates a Planning Opportunity

Because the phase-out keys off taxable income, anything that reduces taxable income can restore some or all of the deduction. Retirement plan contributions are the most powerful lever. A substantial solo 401(k) or cash balance plan contribution can move a physician from the upper end of the phase-out range into partial or full deduction territory, producing a benefit on top of the deferral itself.

This interaction is precisely why entity selection, compensation setting, and retirement plan design should be modeled together rather than decided in isolation.

Other Relevant Changes

• Minimum deduction. Beginning in 2026, a $400 minimum QBI deduction applies where the taxpayer has at least $1,000 of QBI and materially participates.
• SALT cap. The state and local tax deduction cap rose from $10,000 to $40,000 through 2029, subject to income limitations and phase-outs.
• Pass-through entity tax elections. Many states permit the practice to pay state income tax at the entity level, making it a deductible business expense and effectively working around the federal SALT cap. For multi-physician pass-through practices this is often worth more than the SALT cap increase itself.
• Equipment expensing. Section 179 expensing and 100 percent bonus depreciation remain available for qualifying equipment purchases, which affects the timing analysis on startup capital expenditures.

Multi-Physician Practices: Governance and Partnership Structure

For groups, the entity is only the container. The governing documents do the real work, and inadequate documents cause more practice disputes than entity selection ever does.

What the Operating Agreement or Shareholder Agreement Must Address

• Ownership and admission. Who may own an interest, how new physicians become owners, what the buy-in is, and over what period.
• Compensation methodology. How clinical production, ancillary revenue, administrative roles, and call coverage translate into compensation. This should be reduced to a formula rather than left to annual negotiation.
• Governance and voting. What decisions require unanimity, what requires a majority, and how deadlock is broken in an evenly held practice.
• Buy-sell provisions. What happens on death, disability, retirement, voluntary departure, or involuntary removal, including the valuation methodology and payment terms.
• Restrictive covenants. Non-competition and non-solicitation terms, subject to state enforceability limits, which vary considerably and have been in flux.
• Transfer restrictions. CPOM requires that ownership remain with licensed physicians, so the agreement must prevent interests from passing to unlicensed heirs. This is a compliance requirement, not merely a business preference.

The Valuation Provision

Buy-sell valuation should be defined by formula or by a specified appraisal process agreed in advance. Practices that leave valuation to be negotiated at the time of departure reliably discover that the departing physician and the remaining physicians hold irreconcilable views, and that the disagreement arrives at the least convenient moment.

The Tax Structure Interaction

The S-Corp single class of stock requirement constrains how differently owners can be treated economically. Groups that want tiered ownership, preferred returns, or special allocations may find partnership taxation a better fit despite forgoing payroll tax savings. Model both before committing, because converting later is possible but not costless.

Planning for the Exit: How Structure Affects a Future Sale

Most physicians forming a practice are not thinking about selling it. The structure chosen at formation nonetheless shapes what a transaction looks like a decade later.

The CPOM Constraint on Buyers

In states with strong CPOM enforcement, a private equity firm or ordinary corporation cannot directly purchase and own a clinical practice’s assets, because the entity holding the right to practice medicine must be physician-owned. Nor can such a buyer directly employ physicians to perform clinical services. This is why healthcare transactions in CPOM states use specialized structures rather than straightforward asset or stock purchases.

Asset Sale Versus Equity Sale

Buyers typically prefer asset purchases for liability and basis reasons. Sellers often prefer equity sales for capital gains treatment. Entity type and tax election affect how each is taxed, and C-Corporation status in particular can produce meaningfully worse seller outcomes in an asset sale. These consequences are set years before the transaction.

Practical Guidance

Even if a sale seems remote, avoid structures that foreclose options. Keep the entity clean, maintain proper records, keep ownership documentation current, and revisit the structure periodically as the practice grows. A practice contemplating a transaction within five years should model the tax consequences well in advance, because some optimizations require lead time.

The MSO Model and Why It Exists

The management services organization structure is the standard response to CPOM in transactions involving non-physician capital, and it is worth understanding even for physicians with no interest in outside investment.

How It Works

The structure separates clinical from non-clinical:

• The professional entity, a physician-owned PC or PLLC, employs the clinical providers and holds all clinical decision-making authority.
• The MSO, which may be owned by non-physicians, provides non-clinical services: administration, billing, human resources, technology, facilities, and management.
• A management services agreement governs the relationship, with the MSO compensated through fees that should be set at fair market value.

Why the Fee Structure Matters

The management fee is where these structures succeed or fail from a compliance standpoint. Fixed or cost-plus fees supported by a fair market value analysis are the safer approach. Fee arrangements that function as revenue sharing tied to clinical volume raise fee-splitting concerns and, where federal healthcare program business is involved, Anti-Kickback Statute exposure.

Where Value Accumulates

Because physician ownership of the professional entity is required, the PC itself is difficult to sell to a non-physician buyer. In MSO structures, enterprise value is built in the MSO, which can be bought and sold like any other business. This is the mechanism by which private equity participates in physician practices in CPOM states.

Telehealth and Multi-State Operations

CPOM applies in every state where care is delivered, which means telehealth operations serving multiple states may require physician-owned professional entities in each, linked to a central MSO. Regulators have scrutinized telemedicine structures closely, and physicians participating in them should understand what they are signing.

A Caution

MSO arrangements are legitimate and common, and they are also technically demanding. A physician presented with an MSO structure by a prospective investor should have independent counsel review it. The structure determines who controls clinical decisions, how the physician is compensated, what happens if the relationship ends, and whether the arrangement withstands regulatory scrutiny.

A Decision Framework

Work through these in order. The bracketed note on each step identifies which advisor owns it.

• Determine what your state permits. Identify whether your state recognizes CPOM and which professional entity forms are available for medical practice. This narrows the field before any other analysis, and in some states it decides the question outright. [Healthcare attorney]
• Choose between PC and PLLC where both are available. PLLCs generally offer more governance flexibility and lighter formality requirements with pass-through default treatment. PCs offer a well-developed corporate framework that some multi-owner groups and some future transactions favor. [Attorney on what is permitted and the liability and governance implications; accountant on the tax consequences of each]
• Model the tax election. Run the S-Corp analysis against your projected income and a defensible reasonable compensation figure. Include the QBI phase-out interaction and retirement plan contributions in the same model, because they move together. [Accountant]
• Address multi-owner economics before formation. If the practice will have more than one owner, determine whether the S-Corp single class of stock constraint is compatible with your intended compensation and ownership arrangements. [Accountant models the economics; attorney confirms what the entity form and election permit]
• Draft governing documents that reflect actual intent. The operating agreement or shareholder agreement is where the practice’s real terms live. Template documents that were never customized are the source of most partnership disputes. [Attorney drafts; accountant confirms the compensation formula can be administered from actual financial data]
• Separate non-clinical assets. Consider holding real estate and, where appropriate, significant equipment in separate entities. [Attorney forms the entities and papers the lease; accountant models the tax treatment]
• Build in a review cadence. Revisit the structure when income changes materially, when owners join or leave, when tax law changes, and when a transaction becomes plausible. [Accountant leads the annual review and flags when legal review is warranted]

How DoctorsManagement Supports Entity and Tax Planning

DoctorsManagement is a full-service healthcare consulting, accounting, and auditing firm. We are not a law firm and we do not practice law. We have worked with physician-owned practices since 1956, and our accounting team works exclusively with medical practices, which means our analysis reflects how practices actually generate, allocate, and distribute income rather than generic small-business assumptions.

What We Do

• Tax Election Modeling: Financial analysis of S-Corporation versus pass-through treatment against your projected practice income, so you can evaluate the economic consequences of each option your attorney confirms is available to you
• Reasonable Compensation Analysis: Compensation determination supported by specialty and regional benchmark data, documented to withstand IRS examination
• Tax Planning and Strategy: Retirement plan design, equipment purchase and depreciation timing, estimated tax projection and safe harbor planning, pass-through entity tax election analysis, and multi-year modeling
• Tax Return Preparation and Filing: Entity and individual returns including Forms 1065, 1120S, 1120, and 1040, with filings coordinated across personal returns, practice entities, and related real estate or holding companies
• Accounting and Bookkeeping: Reconciled books, ongoing ledger review for reasonableness and IRS compliance, payroll, and monthly management reporting built on profit center data
• Compensation Model Design and Reporting: Custom reporting that reflects each owner’s agreed compensation model, including salary plus productivity arrangements, so that the formula your attorney documents can actually be administered from your financial data
• Practice Management Consulting: Operational and financial guidance across the practice lifecycle, including startup, growth, transition, and succession
• Transition and Succession Support: Financial modeling for partner buy-in and buy-out, practice valuation input, and economic analysis ahead of a sale or transition

What We Do Not Do

These are legal services. They require an attorney licensed in your state, and we will tell you so rather than attempt them.

• We do not form entities or file articles of incorporation or organization
• We do not draft operating agreements, bylaws, shareholder agreements, buy-sell provisions, or employment contracts
• We do not render legal opinions on corporate practice of medicine compliance or on which entity forms your state permits
• We do not provide legal advice on liability exposure, restrictive covenants, or regulatory interpretation
• We do not structure or paper MSO arrangements, management services agreements, or transaction documents
• We do not represent practices in legal proceedings or negotiate legal terms on your behalf

How We Work With Your Attorney

Most physicians we work with have healthcare counsel, and where they do not, we encourage them to retain one before formation. Our role is to supply the financial analysis that makes the legal decisions better informed, and then to build the accounting and reporting infrastructure that the resulting structure requires.

In practice this means your attorney tells you what you may do, we model what each option costs and produces, you decide, your attorney documents it, and we account for it from there. If you need a referral to healthcare counsel, we can point you toward attorneys experienced with physician practices in your state.

To discuss the accounting, tax, and practice management side of your structure, contact DoctorsManagement at www.doctorsmanagement.com/accounting-services or call (800) 635-4040.

Frequently Asked Questions

Can I form a regular LLC for my medical practice?

In most states, no. The corporate practice of medicine doctrine requires a professional entity, meaning a PC or PLLC owned by licensed physicians, and bars unlicensed entities from practicing medicine or employing physicians to do so. Standard LLCs are commonly used alongside a practice for real estate holding, equipment holding, or management services, but generally not for the clinical practice itself. Confirm your state’s requirements before forming anything.

What is the difference between a PC and a PLLC?

Both restrict ownership to licensed professionals and both provide comparable liability protection. A PC is governed by bylaws and a board with stock ownership, carries more corporate formality, and defaults to C-Corporation tax treatment. A PLLC is governed by an operating agreement with membership interests, offers more structural flexibility and lighter formalities, and defaults to pass-through treatment. Where both are available, the difference is corporate formality and default tax treatment, not clinical capability.

Is an LLC or an S-Corp better for a medical practice?

The question compares two different things. An LLC or PLLC is a legal entity formed under state law; an S-Corporation is a federal tax election. A PLLC or PC can elect S-Corp taxation. The real questions are which professional entity your state permits, and then how that entity should be taxed.

How does S-Corp election save on taxes?

An S-Corp owner working in the business must be paid reasonable W-2 compensation, and profits distributed beyond that are not subject to self-employment tax. The savings come from the gap between reasonable compensation and total profit. The constraint is that compensation must genuinely be reasonable for the services performed, supported by benchmark data and documented. Understating salary to maximize distributions is a position the IRS regularly challenges.

Does my entity protect me from malpractice claims?

Not from your own. A physician remains personally liable for their own professional negligence regardless of entity form. The entity can protect against business debts, contractual obligations, premises liability, and in many cases another physician’s malpractice where you were not personally involved. Malpractice insurance, not entity structure, is the primary protection against clinical liability.

Can physicians claim the QBI deduction?

Sometimes. Medicine is a specified service trade or business, so the 20 percent deduction phases out as taxable income rises. For 2026 the married filing jointly phase-out runs roughly from $400,000 to $550,000 of taxable income, with the single range roughly half that, though published figures vary and thresholds are indexed annually. Below the range the full deduction is available; above it an SSTB receives none. Retirement plan contributions that reduce taxable income can restore some or all of it, which is why these decisions should be modeled together. Confirm current thresholds with your CPA.

What happens if I form a PC and forget to make the S election?

The PC defaults to C-Corporation treatment, meaning the entity pays tax on its income and shareholders pay again on distributions. For a practice that distributes most of its earnings this is generally an unfavorable outcome. It is one of the more expensive and more preventable formation errors, and it argues for making the entity and election decisions together with professional guidance at the outset.

Can non-physicians own part of my practice?

In CPOM states, generally not. California, for example, categorically bars unlicensed individuals including family members and investors from holding any ownership interest in a professional medical corporation, and requires physicians to hold at least 51 percent of shares. Some states permit other licensed professionals such as PAs or NPs to hold minority interests. Non-physician capital typically participates through a management services organization rather than through practice ownership.

Should I hold my office building in the practice entity?

Generally not. Holding real estate in a separate entity, commonly a standard LLC, that leases to the practice separates the property from practice liability and preserves flexibility if the practice is later sold or dissolved. The lease should be at fair market value and documented, particularly given referral-relationship and fair market value considerations in healthcare.

Do I need both an attorney and an accountant for this decision?

Yes, and they answer different questions. An attorney licensed in your state determines what the corporate practice of medicine doctrine permits, which entity forms are available to you, forms the entity, and drafts the governing documents. An accountant models the financial consequences of the available tax elections, analyzes reasonable compensation, and handles the returns. Attempting the decision with only one of the two is how physicians end up in entity types their state does not permit, or in C-Corporation status they never intended.

Can DoctorsManagement form my entity or give me legal advice?

No. DoctorsManagement is a healthcare consulting, accounting, and auditing firm, not a law firm, and we do not practice law. We do not form entities, draft operating agreements or shareholder agreements, render legal opinions on corporate practice of medicine compliance, or provide legal advice of any kind. Those services require an attorney licensed in your state. What we provide is the financial and operational analysis that supports the decision, along with tax planning, return preparation, accounting, and practice management consulting once the structure is in place. We work alongside your attorney, not in place of one.

How can DoctorsManagement help with entity and tax decisions?

We model the financial consequences of each tax election your attorney confirms is available, analyze and document reasonable compensation against specialty benchmarks, project the interaction between compensation, retirement contributions, and the QBI phase-out, and prepare the entity and individual returns. We also provide bookkeeping, payroll, monthly management reporting, compensation model design and reporting, and practice transition support. Contact us at www.doctorsmanagement.com/contact-us or call (800) 635-4040.

External Resources and References

• IRS Discussion of the Corporate Practice of Medicine
• IRS Section 179 Deduction Information
• American Medical Association Private Practice Resources
• Medical Group Management Association (MGMA)
• OIG Fraud and Abuse Laws for Physicians
• American Health Law Association (AHLA)
• DoctorsManagement Accounting Services
• DoctorsManagement Practice Startup Services
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Corporate practice of medicine requirements, professional entity statutes, and tax thresholds vary by state, change over time, and are subject to annual inflation indexing and legislative revision. The figures cited reflect published sources at the time of writing and should be independently confirmed. Entity selection and formation should be undertaken with a healthcare attorney licensed in your state, working alongside an accountant experienced with physician practices. DoctorsManagement is available to provide the accounting, tax planning, and practice management consulting components of that work.

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This article is provided for informational and educational purposes only. It does not constitute legal advice, tax advice, or financial advice, and it does not create any professional relationship. DoctorsManagement is a healthcare consulting, accounting, and auditing firm. It is not a law firm and does not practice law, form business entities, draft governing documents, or render legal opinions.

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