Start an LLC for a Healthcare Business
If you’re starting a healthcare business of any kind, a limited liability company (LLC) may be a good business entity choice. Healthcare businesses generally come with some liability risks, and an LLC offers personal liability protection, which protects your personal assets.
LLCs also offer pass-through taxation, meaning that the profits of the LLC pass through to its owners, called members, and are reported on members’ personal tax returns. The LLC itself pays no taxes.
Here you’ll learn all the details of how to start an LLC for your healthcare business.
Select a Registered Agent
A registered agent for your LLC is a person or company authorized to accept official correspondence, such as legal or tax documents, on behalf you’re your healthcare business. Nearly all states require that you appoint a registered agent when you file your LLC formation documents, so you’ll need to select a registered agent before your form your LLC.
You or another member of the LLC can be the registered agent, but by doing so, you are required to be personally available at your registered address to accept correspondence during regular business hours. This can be very restrictive when you’re trying to launch and manage a business.
When starting an LLC, many entrepreneurs turn to a registered agent service instead. A national registered agent service will accept correspondence for your health care business, notify you of its receipt, and make it available to you online. They can ensure that no correspondence is ever missed so that you don’t miss important deadlines.
Choose Your Management Structure
While LLCs offer much management flexibility, you’ll need to decide if your LLC will be member-managed or manager-managed.
In a member-managed LLC, all members are actively involved in the management and operations of the business, and no non-member managers are hired.
In a manager-managed LLC, not all members are necessarily involved in management but may instead be silent partners. Other members are appointed as the managers, and a non-member manager or managers may or may not be hired.
Most small businesses choose a member-managed structure unless they have an investor who is a member but not involved in management. In that case, the LLC would be considered manager-managed.
File State Documents
Next, you’ll officially form your LLC by filing a document with the state. The document is usually called the articles of organization but may be called a certificate of organization or a certificate of formation, depending on the state.
The forms are generally very simple, and in nearly all states can be filed online on the Secretary of State’s website in just a few minutes. Filing comes with a fee, which varies by state and ranges from $40 to $500.
Draft an Operating Agreement
An operating agreement is required in California, New York, Missouri, Maine, and Delaware, but is critical to have no matter where your healthcare business is based. An operating agreement contains many provisions and details about your LLC, including the ownership percentages of members, how profits are allocated and distributed, the voting rights of members, and how disputes are resolved.
It should also specify how ownership can be transferred if, for example, a member leaves the LLC or a new member is added. Additionally, it should contain provisions about what happens if a member becomes disabled or dies.
The document is clearly important whether your LLC has one member or multiple members. In the absence of an operating agreement, state default rules will apply, both such laws often don’t cover every possible scenario.
It’s best to have your operating agreement drafted by an attorney to make sure that your healthcare business and all members are protected.
Obtain Business Licenses and Permits
It’s likely that your healthcare business is required to have various business licenses and permits, possibly at the federal, state, and local levels. You’ll need to do some research to find out what is required for your specific business type. Some online services will do this research for you for a fee and may even assist with the application process.
Obtain an EIN
If your business will have employees or if your LLC has more than one member, you’re required to obtain an Employer Identification Number (EIN), which allows the IRS to identify your business for tax matters. It’s easy and free to apply for an EIN on the IRS website.
You’ll likely also need to register for taxes, such as employment taxes, with your state.
Open a Business Bank Account
Keeping your personal and business finances separate is important and will make your accounting and taxes much simpler. Most banks offer business bank accounts which may come with nominal fees. You’ll likely need to bring your LLC formation documents and EIN with you when you open the account.
Annual Reporting
Most states have a reporting requirement, either annually or biennially. The report is generally very simple and just verifies that you’re still doing business. It’s important to keep up with reporting requirements in your state. Failing to file a report could lead to the dissolution of your LLC.
Most states charge a fee to file the annual report. Some states, like California, have an LLC tax or a franchise tax that must also be paid when the report is filed.
In Closing
An LLC is likely a great choice for your healthcare business, particularly because of the personal liability protection it offers. Starting an LLC is not difficult, but it can take some time to complete all the steps. Be sure not to skip any of the steps and take time with each one to ensure they’re done correctly. If you need help, turn to your attorney or a business formation service to ensure that the process goes smoothly.
