Should I Start an LLC, S-Corp, or Sole Proprietorship for My Agency?
Congratulations-- you've got your credentials, you've got the software (thanks to BHC!), and most importantly, you've got the drive. Now you want to strike out with your own behavioral health business. But how should you structure your business, and what are the benefits of the three most common options? Read on to help discover your best approach: LLC, S-Corporation, or Sole Proprietorship.
Caveats
Before we begin, the standard caveat: The content of this post is not to be taken as legal advice and may not account for all rules and regulations in every jurisdiction. For legal advice, please contact an attorney.
With that out of the way, let's discuss each business model you might create:
LLC - Limited Liability Company
- A very common choice; this business type can have any number of employees, or just yourself. Your personal assets are separate from the business, so if you are sued, it is the business held liable, not you personally. Each state has different restrictions as to what sorts of businesses can register as an LLC, so check your Secretary of State's website.
- For a sole-owner of an LLC, your income and losses are typically passed through to your personal income taxes.
- Be sure to use quality accounting software or a CPA to make sure you keep your personal finances and the business finances separate, or you could lose your liability protection!
S-Corporation
- While very similar to an LLC (in the protection of personal assets), the key difference is that with an S-Corp, the owners are considered employees. They may deduct payroll expenses, earn dividends from company profits, and are required pay themselves a "reasonable salary" based on industry standards.
- This may or may not be beneficial, depending on how you plan to structure your business.
Sole-Proprietorship
- This means you are in business purely under your own name.
- While this is certainly the least expensive to set up (no LLC or S-Corp preparations), it is also the most risky, as you do not have any liability protections, should a client decide to sue you.
So Which Is Best?
Some experts feel that an S-Corp may be the best option if you plan to seek outside financing, or even go public with your company one day. In general, however, LLCs remain the most popular choice because of their relative ease to set up and administer. Plus, you can always change your mind later, and re-file as an S-Corp.
But of course, always seek the advice of a professional CPA or lawyer!