Q: I want to set up an LLC, but I don’t understand how it is taxed. Please help!
A: It’s pretty simple, really. There are two types of LLC’s- single member (owned by just one person) and multiple member (owned by several people). Both forms have “flow through” taxation; that is, the taxes flow through to the individual income tax returns of the owners.
Single member LLC’s are taxed like sole proprietorships, and the net income (the profit, in other words) gets taxed to the owner (member) on his/her 1040. Multiple member LLC’s are taxed like partnerships. Each owner pays taxes on his/her 1040 based on the percentage of membership. For example, if two people are members of an LLC, and each has 50% membership, each will be taxed on 50% of the profits. In the case of multiple owners, the “partnership” also files a 1065 – Information return.
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Q: I have been associating and want to go out on my own and start a PI practice. What factors should I consider in deciding whether to buy a practice or start my own?
A: I’ll start by stating that it is usually easier to buy an existing practice, for the following reasons:
- You have an existing patient base to work from and existing processes and probably employees who can help you get started
- You don’t have to go out and buy assets, like adjusting tables, furniture, etc.
- It’s easier to get a loan from a bank (with the personal financial situation you mention) for a “going concern” than for a startup.
BUT, some other factors come into play:
- Is there a practice available for sale in the specific area where you want to live, or are you ready to move to this location?
- Is the practice for sale at a reasonable price? In my experience, most DC’s want way too much money for their practices. It’s a tricky negotiation to get them to come down to an affordable and reasonable price.
- Is the type of practice compatible with the practice you want? In your case, do they do PI work? This type of practice requires a good relationship with local attorneys and other professionals for referrals, and a specific method of marketing. If the doctor is running a pediatrics practice, for example, it might be difficult to switch gears.
I do think it’s worth looking around in the area where you want to set up practice to see if there are any practices for sale that might be worth exploring. If you can’t find anything within a few months, then you could begin the process of starting your own.
Planning for Practice Success has a lot of information about negotiating a purchase and details about how to start your own.
READ CAREFULLY before you sign a non-compete. A young DC signed an associate agreement with a practice that has two locations. The contract didn't specify WHICH location the non-compete restricted him from. Now what?
To clarify, let's say he goes to work at Office A, which is in City A. The non-compete radius is 30 miles. But the practice also has an Office B, in City B, which is 25 miles from City A. So how far away does he have to move? Sounds like one of those grade school math problems, but it's more serious than that.
If the practice feels he is attempting to take their patients (from EITHER office), they will attempt to sue him. When the dust cleas, even if the non-compete is thrown out or he is found not in violation, he'll have lost lots of time and money, and probably patients.
The best rule to follow with non-competes is to move so far away there will be no question that you are competing.
