“How To Form a Legal Entity for Your Veterinary Practice”

Running a veterinary practice involves more than just providing medical treatment to patients. It includes hiring and managing employees, contracting with vendors and service providers, maintaining compliance with federal, state, and local regulations, and developing a positive brand and reputation in the community. Forming a legal entity for your veterinary practice is the primary way to protect what you have built, especially when insurance coverage falls short.

Why forming a legal entity is important for your veterinary practice

Forming a legal entity is important for several reasons. First and foremost, forming a legal entity provides protection for your personal assets. If your veterinary practice is sued or incurs debt, forming a legal entity can prevent your personal assets from being used to satisfy those liabilities. Additionally, forming a legal entity can provide tax benefits, make it easier to obtain financing, and serve as a foundation for growth should you choose to expand your practice.

Different types of legal entities

There are several types of legal entities to choose from when forming your veterinary practice. The most common entities are a corporation and a limited liability company (LLC). Each state has its own requirements regarding whether legal entities for veterinary practices need to be formed as “professional corporations” or “professional LLCs.”

A corporation is a separate legal entity from its owners, and the owners of a corporation are called shareholders. Corporations are taxed as “C-corporations” by default, which causes the corporation to pay taxes on its profits, and then the owners pay taxes on the dividends they receive. Many corporations elect to be taxed as “S-corporations” to avoid this double taxation; however, the “S-corp” tax election comes with restrictions on availability of share classes, types of ownership, and number of owners permitted.

An LLC is a flexible form of legal entity that provides personal asset protection without the formalities of a traditional corporation. LLC owners are called members and have limited liability for the debts and obligations of the practice. LLCs can be taxed as pass-through entities, meaning that the profits are passed through to the owners and taxed at their individual tax rates.

Steps to form a legal entity for your veterinary practice

Once you have chosen the right legal entity for your veterinary practice, it is time to start the formation process. Here are the general steps to form a legal entity:

1. Choose a name for your veterinary practice and check the availability with your state’s Secretary of State office and veterinary board regulations.
2. File the certificate of incorporation or certificate of formation with your state’s Secretary of State office, as well as any requests for approval, which may be required by your state veterinary board.
3. Obtain an employer identification number from the Internal Revenue Service (IRS).
4. Draft and adopt bylaws or an operating agreement for your legal entity.
5. Open a bank account for your veterinary practice.
6. Obtain any required licenses and permits for your veterinary practice.

Common mistakes to avoid when forming a legal entity

Forming a legal entity can be a complex process, and there are several common mistakes to avoid. One mistake is not choosing the right legal entity for your veterinary practice or not making the appropriate tax elections. Another mistake is not properly maintaining the legal entity, such as not holding required meetings, not keeping accurate records, not completing annual entity reports, or intermingling personal and business funds. Additionally, not obtaining the necessary licenses and permits or not obtaining appropriate insurance coverage can lead to legal and financial consequences.

Hiring a professional to help with forming a legal entity

If you are unsure about the formation process or want to ensure that everything is done correctly, consider hiring professionals, such as an attorney and an accountant, to assist with the process. A professional can provide guidance on the best legal entity for your veterinary practice, make certain that all necessary documents and tax elections are filed correctly, and help with the maintenance of the legal entity.

Conclusion

Forming a legal entity is an important step in running a veterinary practice. When choosing a legal entity, consider the size of your practice, the number of owners, your growth goals, and your tax and liability preferences. Remember to properly maintain your legal entity and seek professional assistance if needed. By following these guidelines, you can successfully form a legal entity for your veterinary practice and protect your business for years to come.