CHAPTER 6

Business Formation and Entity Structuring

Adam Winger

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CHAPTER 6

Business Formation and Entity Structuring

Adam Winger

ENTITY TYPES

One of the most important decisions in the life cycle of an urgent care business is made before the first patient is treated. Choices relating to entity structuring and formation can and often do have a direct and dramatic impact on the tax and operational aspects of the urgent care business. This chapter addresses many of the basic issues an owner of an urgent care company must confront before opening its doors for business.

Common Entity Issues

Business entities are creations of, and are governed by, state law. As a result, the challenges faced by owners of urgent care companies in one state could differ materially from that of another. Most state statutes, however, allow for business to be conducted by or through any of the following entities: general partnerships, limited partnerships, corporations, limited liability companies (LLCs), and certain professional organizations such as professional corporations and professional LLCs. Because of the relative frequencies that each type of entity is used in the urgent care industry, this chapter focuses predominantly on corporations, LLCs, and professional organizations.

General Entity Characteristics

Corporations and LLCs (including professional corporations and professional LLCs) are the most common entity choices used in the urgent care industry. Although a complete explanation of the unique attributes of each of these entities is beyond the scope of this chapter, the following material should provide enough context for you to engage in a meaningful conversation with your attorney and accountant.

Among the differences between corporations and LLCs is the terminology used. Owners of corporations are referred to as shareholders or stockholders, whereas those of LLCs are referred to as members. Corporations are managed by a board of directors who delegate operational authority to officers, whereas in most states LLCs are managed either by one or more managers or directly by the members.1

LLCs are universally considered the more flexible choice of entity. For example, a number of formalities must be followed if owners of an urgent care company decide to operate as a corporation. Among other things, corporations in most states are required to hold an annual meeting, prepare and maintain corporate minutes, and maintain stock books with share certificates. LLC statutes, on the other hand, generally impose none of these requirements. Many state statutes also provide for corporate dissenters’ rights, which entitle a minority shareholder to demand fair value for their shares when a majority approves certain extraordinary actions to which the minority shareholder objects. Although certain LLC statutes may provide for similar rights as a default measure, the majority of states permit LLC members to waive such rights in a written agreement.

Formation Mechanics

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