Posted by: Robert Markette
May 17, 2006

Because many home care and hospice providers are small companies and because I keep hearing commercials on the radio for companies that help other companies incorporate or organize as an LLC, I thought I would post a few thoughts on the two most common forms of organization for small businesses. Most of you are either incorporated or organized as a limited liability company. For those of you that are incorporated, I would guess that you have filed for treatment under subchapter S of the Internal Revenue Code. Such a corporation is usually referred to as an S corporation and is taxed as a partnership. (Many individuals think an S corporation is a specific form of incorporation, but it is really just a shorthand way to refer to a corporation that is taxed under Subchapter S.)

The reason you chose to incorporate or organize is most likely for the personal liability protection. As a health care provider, you have employees which creates a number of potential sources of liability. The corporation and LLC acts as a shield to help protect you from losses beyond your investment in the company.

Most attorneys and accountants have an opinion as to whether a small business is better off to organize as an S corporation or an LLC is better. In my opinion, they are equal from a standpoint of limited liability and (because of subchapter S) taxation. However, I favor the S-corporation, because there is over one hundred years of case law discussing corporations, corporate governance, corporate liability, shareholders rights, etc. This provides a relatively high degree of certainty when it comes to answering questions about a set of facts. In most instances, if an issue comes up regarding the corporate form, it is an issue that has been addressed by the courts before. As an attorney advising clients, predictability is a good thing.

Furthermore, the concept of a corporation is familiar to clients. Most individuals understand shares, shareholders, board of directors, board meetings and the other concepts associated with a corporation. This makes it easier for the client to understand the corporate formalities and follow them. Following the corporate formalities is important for many reasons.

[I will add the following disclaimer: In some states or in certain limited circumstances, an LLC may have specific advantages for a business due to that states law.]

Another common misunderstanding regarding corporations and LLCs is the notion that operating as a Corporation requires more paperwork, in the form of resolutions, minutes of board meetings, etc. This is not true. If done properly, a company can be incorporated in a way that will not require any more paper than an LLC.

My real point is this, for small health care providers, S corporations and LLCs are basically the same for liability and tax purposes. The LLC is often recommended as necessary for tax purposes, when in fact, it is not necessary. If you are thinking about using one of those services that advertise on the radio, I would recommend you speak with both your accountant and your attorney instead.

News

Radio ads for companies that help you form a company

News

Health Care

Topics

Recent Updates

Archives

Web Resources



	Home \| Attorneys \| Contact Us \| Site Map
	The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. Copyright © 2008 by Home Care Law Blog Gilliland & Markette LLP. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.