Practice Entity

What is a practice entity?

A practice entity is the business structure through which a professional delivers services. This might be a professional corporation, professional LLC, partnership, or sole proprietorship. The entity choice affects liability exposure, tax treatment, and regulatory compliance. For licensed professionals, state rules often restrict which entity types can be used and who can hold ownership interests.

Choosing a practice entity

Consider liability protection, tax implications, administrative burden, and ownership flexibility. Sole proprietorships are simple but provide no liability protection. Partnerships work for multi-owner practices but expose partners to each other's liabilities. Corporations and LLCs provide liability protection with varying tax treatments. Factor in your profession's specific requirements and your long-term plans for the practice.

Changing your practice entity

Practices outgrow their initial entity choice. Bringing in partners may require restructuring. Tax planning opportunities may favor a different form. Entity conversions or reorganizations can accomplish these changes but require careful planning. Consider the tax consequences, licensing implications, and contract novation requirements. Work with your accountant and attorney when restructuring your practice entity.