As you begin to think about establishing your own private practice, if that is your ultimate goal in optometry that is, an important question to consider is the different formations your practice can represent. This article serves as a brief summary highlighting some of the routes you can take in defining your private practice, and the advantages and disadvantages of these categorizations of practice.
Here are some of the legal forms of practice in optometry:
It is increasingly becoming uncommon for an OD to go out as a single individual and practice optometry as a sole proprietor. Economics have really forced a congregating or consolidation of professions. Very few professionals will open up by themselves but will become part of a larger group giving us as optometrist many different options in defining our practice.
The Sole Proprietorship: Defined as a natural person. You open up a practice as yourself. You in your own name provide services to the public as an OD. The disadvantage to this type of practice is that if any liability arises, you are personally liable and all of your assets can be exposed including those not associated with your practice. The lifetime of the practice exists as long as you the individual are living. This method of ownership is frequently becoming less common. Taxes on the other hand are not withheld from your paycheck and you will be required to submit quarterly tax vouchers to your state and federal government. You can write off numerous business expenses although other modalities offer better tax advantages. One should consider acting as a sole proprietor if they decide to get into optometric consulting, although opening a private practice as a sole proprietor is not the most practical idea.
A General Partnership: Exists when two or more individuals or natural persons join together and decide to practice together. It is not just a matter of splitting rent or sharing the bills of owning a practice space, but developing an entity known to the public as an optometric entity. The major issue with this type of practice is liability. If you are in a partnership, you are liable for your own mistakes and the mistakes of your partner. If you have more assets than the partner, the person suing for example can target you even if the initial transgression was not your fault. The advantages include tax advantages and how cash flow is directly allocated to the owners. This type of entity lasts until one of the partners becomes deceased.
The Corporation: A corporation is a person in the eyes of the law, albeit an artificial person. Once you and the parties involved have gone through the formation of the corporation, it is identified as a separate person from the owners and employees. It’s a person within and of itself. Services rendered in the name of the corporation are services of the corporation and liabilities arising from these services are liabilities of the corporation. The major advantage to this type of practice formation lies within liability and lifetime. Corporations will exits forever even after death of individuals who made it. This allows the creators to develop equity that has value beyond each individual’s professional lifetime which can be transferred to another person or other people. If there is a lawsuit, the corporation itself is responsible for the implications associated with the lawsuit. Owners of the corporation commit capital to fund the corporate activities of the corporation. In exchange, they receive some percentage of ownership interest in the entity that is the corporation. Each owner’s liability is the amount they contributed to the formation of the corporation. This amount can be very limited and is the maximum amount the owners are responsible for in the event there is litigation against the corporation and individual assets not associated with the corporation are protected.
Limited Liability Company: This type of practice will vary from state to state and it truly represents a hybrid entity. It resembles a corporation in terms of liability and transferring ownership, but the major difference from a corporation is that it is a distinct form of partnership which has various taxation advantages. One of the big advantages of general partnerships as previously mentioned include tax advantages that allow money to flow directly to the owners. Corporations on the other hand get taxed as separate entities in addition the individuals who own it, in a sense, there exits a double taxation. The LLC gives you the same protection in regards to liability as a corporation, but also includes the tax advantages of a general partnership. This is a truly a great form of practice and it is no surprise that a lot of organizations have begun to developed themselves as such.
As we begin to form our private practices, it is important to consider what type of practice formation you will define yourself as, and once again, each formation has distinct advantages and disadvantages to consider.
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