A Closer Look at LLCs: Understanding Corporate Structure for Cash Pay Practices
Operating a cash-only business model (i.e., not accepting reimbursement from a commercial payor, Medicare, or Medicaid) to treat patients, such as med spas,has many benefits for patients, healthcare providers, and the business. Whether you are starting a new med spa or currently own one, business owners must consider, among other things, choosing the appropriate entity to begin the practice. While there are many business structures, such as corporations, partnerships, and limited partnerships, a limited liability company (“LLC”) offers unique features and is the one of the most commonly formed entities.
- Choosing Your Cash-Pay Entity – A Brief Overview of LLCs
An LLC is a structure that combines features of a corporation and a partnership. LLCs offer liability protection similar to that of a corporation while providing flexibilitysimilar to a partnership. The owners of an LLC are known as members. Florida regulates and governs LLCs by statute.Virtually anyone can take advantage of an LLC.
Business Model and Tax Flexibility. LLCs are flexible entities that can be customized to different business models, while also leaving open a variety of tax options. LLCs can choose to be taxed as a “disregarded entity,” partnership, or corporation (s-corporation or c-corporation). The LLC itself does not pay federal income taxes unless it elects to be taxed as a corporation.By not electing to be taxed as a corporation, the LLC avoidsbeing taxed both through the company and through your personal returns from the business.
Limited Liability. When operating a med spa, disputes can arise from creditors, injuries of staff and patients, and even malpractice allegations. LLCs offer limited liability to its owners, offering protections of personal assets from creditors and lawsuits. For example, if a patient is injured in your med spa and decides to file a lawsuit against the business, the scope of the patient’s lawsuit will be limited to the med spa’s business assets rather than putting your personal assets, such as your vehicle or personal savings, at risk.
Flexible Management.Business owners should also consider whether they want the LLC to be Member Managed or Manager Managed. In a Member Managed LLC, the company’s members are involved in the decision-making process. For Manager Managed LLCs, only the designated managers can make such decisions and can only enter into binding contracts on behalf of the company.Larger companies with many members typically prefer a Manager Managed LLC because of thepotential difficulties in organizing all the members to make business decisions or the existence of passive investors members. Member Managed LLCs, however, provide a more streamlined business decision process and are typically best for smaller companies who want to keep their members engaged and for sole business owners.
Operating Agreement. Owners of an LLC should also enter into an Operating Agreement before operations begin. The Operating Agreement is the controlling document that specifies the obligations and roles of the members, determine capital contributions, establish voting rights, day-to-day matters such as meeting procedures and notice requirements, and other issues surrounding the operation and structure of the company. Without an Operating Agreement, the Florida statutes will govern the rules and obligations of the LLC by default. It is important to create an Operating Agreement to customize the operation of the company to suit your needs best.
Choosing the appropriate corporate structure for your cash-pay business is a crucial decision. From liability protection and flexible management to tax advantages, an LLC provides a well-grounded foundation for the success of your med spa.No matter where your med spa is or will be located, the Florida Healthcare Law Firm can assist you in getting the legal entity established.