Do It Right
Many of you are frugal do-it-yourself experts. Fueled by your broad intelligence and the instant accessibility of “how to” videos and websites, there is a temptation to try to figure out most things on your own. I understand because I have a similar mindset. Before I outsource anything, I will usually take a cursory look on the web to see just hard it is to do it myself. Over the years, this has worked out well sometimes—and other times not so well.
For example, there was the time that my wife and I set out to remodel the kitchen in our house that was built in 1870. It looked like a simple demolition process to remove a wall that would make the kitchen bigger. Unfortunately, when the wall came down, it revealed a critical supporting wall for the floor above it. Yikes! My home contractor friend just shook his head after arriving to assess the cause of my urgent call. Thankfully he was able to fix my mistake without a disaster occurring. Sometimes you are better off having a professional do the job from the start!
Every PC is Unique
If you need a little more inspiration about why you should start your corporation, I recommend you pick up a copy of Start Your Own Corporation: Why The Rich Own Their Companies from Gary Sutton, or for a shorter burst of inspiration, read my blog post on it.
When it comes to starting your PC, don’t jump in via Legalzoom as an easy way to get your PC off the ground. Your PC should be organized under experienced legal guidance by someone who understands doctors so that it is designed to support your professional and individualized needs and goals. Much like every doctor is uniquely different from others, so every PC is different from another. Both you and your individual business are colored by your interests, personalities, goals, and purposes, and that uniqueness is transmitted into the structure of your PC. While any licensed doctor can start and form a PC, I recommend you hire a professional to help you make sure it is done right rather than try to do it yourself.
Warning
I am not a lawyer, and any of the following material should not be construed as legal advice to you. Since you and I are both medical professionals and not business attorneys, many of the ins and outs of setting up and managing a professional medical corporation will likely not be familiar to you.
The following will walk you through some terminologies and introduce you to how PCs are established and governed. This will inform you about what to expect as you walk through this process with a professional.
Timing
Some may wonder when is the earliest that you could form a PC and start streaming your income through it. The short answer is that this can occur sometime after your first year of post-graduate training within your specialty.
The critical element for most states is that you must have an independent medical license. Of note, this is different from your training certificate, which is a form of a license issued to physicians who are in an accredited residency program. This license permits you to practice under supervision with your training institute and can be used in that institution until you graduate. This type of licensure does not allow you to practice independently. Determining when to seek a full independent medical license during your residency will depend on personal priorities and what your training institution supports. Some residents, for instance, may seek licensure to moonlight during their training years. In addition, some graduate medical education (GME) institutions may require a physician to be licensed at a certain point in their training.
Regarding the timing of your independent license, I believe doing it sooner rather than later offers you more professional flexibility. I obtained mine soon after my first post-graduate year so that I could moonlight. I saw moonlighting as a great way to make additional income. Still, more importantly, it benefitted my professional development due to how it forced me to think and act independently. I do not doubt that I matured as a physician faster due to experiences like being the only doctor in a rural Virginia hospital during 60-hour weekends in which I managed all inpatients and staffed the ER. These intense moonlighting experiences ultimately allowed for the diverse use of my professional skills to earn more income but also opened the door to the possibility of starting my PC. I didn’t start a PC then but wish I would have based on what I now know.
After 1 year of Training
In 33 states, MDs can obtain a license to independently practice medicine after just one year of training, and in 37 states, DOs can do the same. For most states, you will be required to pass step 3 of the USMLE or COMLEX before applying.
Thus it is possible to form a PC after one year of post-graduate training if you believe it will benefit you with your side hustles. I recommend you check with your state on its rules regarding this. If your state allows for it, you can form a PC to funnel your moonlighting income through it. I suggest you work with your tax professional to set this up properly.
If you are an attending physician, it’s never too late to create and use this special small business power you have earned., it applies to just about any job situation you are in or plan to be in.
Steps to Start A Pc
Let’s just jump right in. Most small businesses do benefit from having a simple business plan that supports your big idea, considers the competition, and seeks input from others. For physicians forming who are forming a PC, your business plan is pretty simple and is distilled down to seeing patients and making money. Where and how you do it are additional considerations. But regardless of the answer to that the latter piece, as previously reviewed, you will be wise to form a corporation around your professional life.
The steps to forming a PC for medical professionals are similar to starting a regular corporation such as an LLC. I will walk you through the process and highlight the important things to note for each step. I strongly recommend that you seek legal counsel and advice from a financial professional, such as an accountant, before starting this process.
Step 1: Decide on a Name
In many states, you will be restricted to choosing the first or last name of one or more stockholders as the name, for example, “Tod A Stillson MD, PC.” Some states will allow you to choose a fictitious name, but this usually requires some extra steps to file a permit with the state. No matter your route, you’ll need to ensure your name is not already taken. Most states will have a way for you to do a preliminary business name search on the state website, most commonly under the secretary of state.
Step 2: Appoint A Registered Agent
This can be a person or a company who will be the contact between your corporation and the government. They will file the necessary paperwork and receive official legal correspondence. This cannot be the corporation itself, but it can be a person affiliated with the company, like yourself. Your agent, attorney, or accountant will often fill this role. Check with your state on its corporate agent requirements.
Step 3: File the articles of Incorporation
The Articles of Incorporation are basically what formally start your corporation. They have to be filed with the state. This document will contain the corporation’s name, address, and purpose, the Registered Agent’s information, and the number of shares the corporation can issue. This document should specifically state that it is for a professional corporation.
Step 4: Send In the Statement of Information or Business Entity Report
Each state will vary on the name of this component, calling it something like a statement of information, an annual report, or the business entity report. This will contain critical business information such as registered agent, officer(s), business address, mailing address, and email.
Step 5: Register With Your State’s Governing Medical Board
All of your shareholders must hold valid medical licenses to be part of the medical corporation. You must also register the company with your state’s governing board. Each state has specific laws that govern the shareholders.
Step 6: Draft Your ByLaws
Bylaws are internal governing documents for corporations, while an operating agreement lays out internal operating procedures for an LLC. Since you are setting up a professional corporation, you will need to have bylaws, which are the rules and procedures by which your corporation operates. States can vary on whether the state oversight agency needs a copy of them. This document specifies who can be issued shares and who can and will serve as the board’s executive officers as president, vice president, etc.
Although the shareholders for PCs must be licensed as a physician, this does not mean that the corporation cannot have employees who are not licensed practitioners, such as a spouse.
After legally forming your corporation, you’ll need to hold a Board of Directors meeting and put your bylaws into effect. Because this is a critical element in setting up your corporation, you will want a trained professional to draft and oversee this document. This is where working with someone with experience setting up PCs is very helpful, like SimpliMD. An experienced agent who understands you, your needs, and the best business structure to support your short- and long-term goals are even more valuable here. You can do this generically or in a highly individualized manner. You will pay more for it to be individualized with built-in business and tax advantages, and I can assure you that this extra work and expense will be worth it.
Step 7: Registration and Taxes
You will need to apply for an EIN (Employer ID Number) from the IRS, pay corporate taxes to your state and register with your state, obtain state business licenses and permits, and possibly apply for various other local licenses depending on your city and county regulations. This is where an experienced business attorney can guide you through this process to ensure you don’t miss anything.
You will want to decide on your tax designation as an S Corp or C Corp. Most doctors will choose an S Corp status as it may help provide you with some business and tax advantages. As a reminder, S Corp status will allow the corporate income to flow through to the shareholders and be taxed on their individual income tax level. This is called “pass-through” taxation and helps small businesses not get taxed excessively.
Step 8: Open A Business Bank Account
Once you’ve filed the appropriate paperwork and established your corporate identity, you will need to open a business bank account. This ensures that you keep your business assets separate from personal expenses. You’ll likely need your Articles of Incorporation, By-Laws, and EIN to complete this step.
Cost To Start
Always remember that you get what you pay for, so I recommend that you don’t try to form or maintain a PC, nor patch the components together from multiple sources. The costs are hard to measure due to the individual nature of a PC, the tax-advantaged plans built in, state-specific considerations associated with a PC, and the preferred tax designation.
So beginning with this information, the following would be some cost comparisons from basic setups to progressively more personalized sources who can help you create your PC:
Using an online company would keep your costs at around $1500-$2500
A community-based general lawyer will charge you $3000-$5000 to set things up relatively simplistically.
An experienced physician-centric lawyer will charge you around $5000-$10,000 to do all of the steps involved with some specificity to your specialty along with some built-in fringe benefits and months of wrap-around legal advice that will make the return on investment worth the extra costs. In the long run, the latter choice, although more expensive, will more than pay for itself.
