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LLC For Therapy Businesses
Starting a therapy or counseling business is a challenging but rewarding endeavor. It will allow you to help clients in your own unique way, explore new therapeutic techniques, and, most importantly, have a job that fits your lifestyle. When forming a new business, you must choose a legal structure that fits your goals. For therapy businesses, this could very well be an LLC.
Here is what you know about LLCs, their advantages, and why your therapy business needs to be one.
Definition
What Is An LLC?
A Limited Liability Company (LLC) is a business structure that protects its owners from being held liable for taxes and business debts.
LLCs offer remarkable flexibility during the formation process, providing therapy businesses with a range of benefits. These advantages include potential tax benefits, simplified management, and exclusive perks offered only to LLCs in certain states. Moreover, you have the option to co-own the LLC with a partner or multiple members, allowing for an equitable distribution of profits and responsibilities.
Advantages
What Are The Advantages Of An LLC for A Therapy Business?
Whether you plan to provide services for physical therapy or mental health, LLCs are the best structure for it. Here are some of the benefits of starting a therapy LLC.
Limited personal liability
Businesses related to the mental health field are more prone to getting sued because of professional malpractice. Your patients or clients can file lawsuits against your business if they experience improper care or treatment.
In the event that your therapy business faces legal opposition, your house, car, bank account, and personal assets will not be seized for compensation. An LLC also maintains a legal status, so lawsuits will only be filed in your LLC’s name and will not jeopardize your name.
Taxation benefits
All LLCs enjoy something called pass-through taxation. Pass-through taxation exempts businesses from paying double taxes like corporations. Instead, all profits and losses are disclosed only on the owner’s tax return.
Easy startup
Another notable benefit of initiating a therapy LLC is its streamlined and straightforward setup and maintenance process. Compared to other business structures, LLCs involve minimal paperwork. This allows you to focus on running your business and managing your clients. You will only need to file most documents annually.
Disadvantages
What Are The Disadvantages Of A Therapy LLC?
Naturally, with advantages come the disadvantages. Below are the important things you have to keep in mind when establishing your LLC.
Costs
Starting an LLC is not as cost-friendly as forming and maintaining a sole proprietorship or general partnership—two of the other more common business types in the industry. Most states also impose other charges on LLCs, including annual reports and franchise tax fees, so be sure to check if yours does the same.
With your business operating in the wellness and mental health sector, you must also check for related permits, licenses, and other requirements your state will demand for therapy LLCs.
Transferability of ownership
Transferring ownership of an LLC can be challenging because of the many rules and regulations on how it is done. You have to familiarize yourself with these regulations before establishing your LLC, allowing for strategic planning when the need for ownership transfer arises.
LLC Formation
How To Create A Therapy LLC
Although the process of establishing an LLC for your therapy business may appear challenging and time-consuming, fear not. By following the necessary steps and procedures, you can complete the process and overcome any potential challenges along the way.
- Pick a name for your LLC
- Hire a Registered Agent
- Create and submit a Certificate of Organization
- Draft an Operating Agreement
- Acquire an EIN
Pick a name for your LLC
When forming a therapy LLC, the first step is to select a name that complies with your state’s naming regulations. For example, some states require you to place “LLC” in your therapy business’ name. You can view your state’s naming requirements on your Secretary of State’s website.
Hire a Registered Agent
The majority of states demand that an LLC owner employ a registered agent. They are responsible for receiving and managing legal and official papers on behalf of the LLC. A registered agent can be you, a CPA, or a company representative that knows their way around finances.
Create and submit a Certificate of Organization
A Certificate of Organization (often called the Article of Organization) is a document that provides essential details about the LLC, its purpose and goals, its members, and its administrators. It is filed to your Secretary of State and is necessary to establish your LLC as a legal entity. The Certificate of Organization file requires a filing fee and typically needs to be recorded within 90 days from the formation.
Draft an Operating Agreement
The Operating Agreement outlines the various tasks performed by the members and staff of the LLC. It is a legal document that ensures your therapy LLC has structure, which can resolve conflicts and disputes before they occur.
To create an Operating Agreement, you need to carefully consider and address any factors that could impact your goals. Once you have identified your objectives, a legal expert can prepare the agreement for your final review and approval.
Acquire an EIN
Approach your nearest Internal Revenue Service (IRS) and obtain an EIN (Employer Identification Number) for your business. You will need this to open business bank accounts, file taxes, and hire staff.
Your therapy LLC is set at this point. But again, do not forget to check your state or county for other licenses and permits you will need to legally operate in your area.
LLC Taxes
How Are Therapy LLCs Taxed?
LLCs enjoy significant tax flexibility during their formation. Below are the common ways your LLC can and should be taxed:
Single owner
Your business earnings are considered your salary, and you will only have to file for taxes for one entity.
Multiple members
Your beauty business is taxed like a partnership. Your company does not have to pay company tax, but each member of the LLC files their own salary/share of the profits as personal income.
S-corporation
You can also choose to tax your LLC like a corporation. If you are earning big profits, taxes are sometimes lower as an S-Corp.
Due to changing and varying tax laws in different states, consult a tax professional to help decide which option is best for your business.
Costs
What Are The Costs Of Starting A Therapy LLC?
Different states have different costs for starting and maintaining an LLC. Here is a breakdown of the essentials:
LLC Costs
State filing fee
$50+
Registered agent service
$100+
LLC formation service
$50+
Operating agreement
$200+
Business license and permits
$50+
Employer Identification Number (EIN)
Varies
Initial legal and accounting fees
$200+
Equipment and supplies
$500+
Marketing and advertising
$500+
Various factors, such as your business structure, location, financial strategies, workforce, resources, and determination, can significantly impact the success of your therapy business. An LLC can give you the necessary edge during formation due to lower costs and other added benefits, such as tax flexibility.
For a more detailed overview of forming LLCs in various states, check one of our guides below:
Comparisons
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.