How to form a new practice entity

The weather in New York is beginning to improve after a long winter and my staff is fielding the usual rash of telephone calls from vets hoping to open new practices. And, though I am going to be giving a day-long lecture on the topic of new practice formation at the Atlantic Coast Veterinary Conference later this year, I thought now would be a good time to provide some useful pointers to veterinarians planning to set up shop in the near future.

Selecting a business entity

While many veterinarians and other health professionals elect to organize their new business as a sole proprietorship or partnership, there are a number of other alternatives that may serve the practitioner better.

Practicing without the liability protection of a business organization such as a limited-liability company or a corporation may place all of the veterinarian's personal assets at risk in the event of a personal injury or other judgment arising at the workplace. Some tax advantages also may be available to veterinarians electing to practice within the framework of a corporation or LLC. I strongly recommend that an accountant be consulted.

It is not particularly difficult or expensive to establish a corporate structure, a limited-liability company or a limited-liability partnership for your practice. In fact, the process frequently does not even require the services of an attorney. A veterinarian can do the paperwork. Also, there are a number of online companies that will help you set up one of these business entities for a fair price. These services, in many cases, even supply the business owner with such paperwork as draft LLC operating agreements and even stock certificates. You might even get a cool corporate impression seal at no extra charge.

The devil is in the details

You simply cannot do business as a practice owner until the business-entity question is decided. The primary reason for this is that the state and federal governments want to know who or what is ultimately liable for payroll-tax withholding, unemployment insurance and so on. If there is no business entity elected, the veterinarian as an individual is liable and all documents pass through the government guided by his Social Security number.

If the business entity is to be a corporation or LLC, either of these must be assigned a federal tax-identification number prior to transacting business in its own name. In the case of a single-member LLC, the IRS actually issues two such numbers; one for the LLC and another for the solo member.

When a veterinarian plans to open up shop, these various details can occupy much more time than might be expected. The IRS has a fax line for obtaining tax ID numbers, and the forms can be downloaded from www.IRS.gov. The TIN application can be made by faxing the form SS-4 to (631) 447-8960. An agent will walk you through the process if you wish; for this call IRS at (800) 829-4933.

Other time-consuming minutia

There are a few other details that can end up taking your business organization project longer than expected. In some jurisdictions, professional practitioners, including lawyers, veterinarians and so on, cannot apply directly to their state to practice as a corporation or LLC without some additional preliminary steps.

As a general principle, corporations and LLCs begin to exist when their formation document (charter, articles of organization, etc.) have been filed with the Secretary of State. A number of secretaries of state will not accept an application for formation of a corporation or LLC for the purpose of practicing a profession until their office has received official notification that the applicant for the professional LLC or professional corporation is duly licensed to practice in that state. This certification process can take extra days or even weeks or months.

Additionally, LLCs and corporations have limitations on the names that may be used for the entity to be formed. For example, it may not be legal to include the word "Group" in the corporate name. Consequently, you may have to first satisfy the veterinary-licensing agency in your state that your proposed name is acceptable, then go online or pay a fee to the state to reserve the name with the Secretary of State.

Once the name issue is resolved, it may be necessary to file an application with the state (with whatever fee applies) for an official certificate stating that the applicant for the professional business organization is licensed to practice veterinary medicine. When you receive this document, you may have to forward it to the Secretary of State with another fee for filing. Once filed, you are in business, sort of.

You mean there's more? Yup. Once you have established a professional corporation, it probably will need to file its own little tax return every year, in addition to the usual state and federal withholding documents. If the business entity is a professional limited liability company, you may have to take two additional steps to complete the legal formation process:

1. In some states, it is necessary to order (at additional cost, naturally), a certified copy of the LLC filing certificate from the Secretary of State. This form may have to go back to the veterinary licensing agency to certify that you are now practicing within a business entity. (I suppose they thought you originally asked for their license verification because you were just kidding around.)

2. In several states, it is then necessary to satisfy what is known as a "publication requirement." This is a process whereby a legal notice is printed in the classified section of one or more local newspapers to make the world aware of the formation of the new business entity. Again, there are online companies who may be able to comply with this requirement more cheaply. Once you have undertaken all these steps, you are finally ready to go: You can get your bank account, order your insurances and embark on lots of other paperwork you will need to conduct business in your particular state. The take-home point is this: Plan on these steps taking longer than they should because they often do.

Case in point

Once I filed for an LLC and stated that the profession to be conducted was "veterinary medicine and surgery." I wrote this because this was the wording on the applicant's license. Application rejected.

The words "and surgery" are not included in the list of acceptable professions in the state in question. The application was retuned to me for the official "white-out" procedure, and resubmitted. The new improved version was just the ticket.

Another time I applied for a practice limited-liability company name and that name included the words "Animal Hospital." Application rejected.

The state involved returned the application, stating that applications with these words must be accompanied by a signed statement certifying that the "animal hospital" facility would have kennels to house the animals.

I suggested to my client that we just call the state and tell them that actually we planned just to duct-tape the hospitalized patients to the sink.

Dr. Allen

Dr. Allen is president of the Associates in Veterinary Law P.C., which provides legal and consulting services exclusively to veterinarians. He may be contacted at (607) 754-1510 or info@veterinarylaw.com