When you decide to open a new clinic, you may have to meet various legal requirements before you can start the business. For example, you may wonder if you need to form a professional corporation to operate your clinic. The requirements for the legal form of a veterinary clinic will depend on state laws and regulations. However, registering a professional corporation for a vet clinic can provide you with certain legal and financial benefits.
What Is a Professional Corporation?
A professional corporation (PC) is a specific type of business entity form. Unlike traditional corporations, only licensed professionals, such as veterinarians, may form and own a PC to provide professional services. State law requires all owners of a PC to hold a valid state license to provide the professional services the corporation offers. Like a corporation, a PC provides limited liability protection to its owners for general business liability. However, owners remain personally liable for malpractice they commit in rendering professional services.
Do Veterinarians Need to Form a PC?
Whether a veterinarian requires a PC to open a new clinic will depend on state law. Some states may require veterinarians to organize their clinics or practices under legal entities, such as professional corporations. Some states allow owners to open clinics under other kinds of legal entities. State law or veterinary licensing board rules may also regulate who may own equity interests in veterinary clinics, who may have clinical decision-making authority, and what clinics must include in their business names.
Benefits of a Professional Corporation
A professional corporation may provide significant benefits to veterinary clinic owners, including:
- Liability Protection – PCs can protect owners from personal liability for business-related debts, such as lease payments, unpaid vendor contractors, or employment law claims.
- Potential Tax Flexibility – A professional corporation may qualify to elect Subchapter S (S-corp) taxation, depending on its ownership structure. S-corp taxation may become more advantageous for a vet clinic, depending on how it pays its owners salaries, profits distributions, and other compensation.
- Professional Credibility – A veterinarian may enhance their image and credibility with clients, vendors, landlords, or lenders by structuring their clinic as a PC. A PC may make it easier for clinic owners to secure financing or negotiate more favorable lease terms.
Limitations of Professional Corporations
Running a veterinary clinic under a PC may have certain limitations and requirements, such as:
- Ownership Restrictions – When a vet clinic operates as a PC, it cannot have any owners who lack a veterinary license.
- Corporate Formalities – Professional corporations require owners to observe certain legal formalities, including maintaining separate corporate finances, keeping corporate records (e.g., resolutions, board/shareholder meeting minutes), and holding annual and special meetings of shareholders and directors.
- Malpractice Liability – Although a PC offers limited liability protection for general business liabilities, it cannot protect a veterinarian from liability for malpractice committed while treating an animal.
Alternatives to a PC
Veterinarians may have other options for organizing their clinic business beyond a professional corporation, depending on state laws and the rules and regulations governing the veterinary profession in that state. Potential options for a business form may include:
- Partnership – Provides no limited liability protection for owners for general business liabilities
- Limited Liability Company – Combines features of partnerships with limited liability protection similar to a corporation
- Professional Limited Liability Corporation (PLLC) – Operates like a limited liability company but, like professional corporations, its owners must hold licenses to practice the professional services the company offers
Contact Our Law Firm Today for Experienced Legal Counsel for Entity Structuring for Your Veterinary Practice
Have you considered starting a new veterinary clinic? If so, you need to understand the legal requirements you must meet, including the required legal structure for your new business. Contact Mahan Law today for a free initial consultation with our legal team to learn more about professional corporations and discuss whether you need one to open a vet clinic.