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Independent Contracting: A Cardiologist's Journey with a Delaware LLC

Mar 15, 2024

I had a cardiologist reach out to me recently at SimpliMD. He had just completed and his fellowship and read my book.

He could not readily identify an employer that was willing to hire him as a long-term independent contractor in an employment lite agreement. So he was planning to do locum work in Maryland until he could find the right job. This is what he said:

I do have a Delaware LLC I intend to use for locums. I anticipate doing locums for about 6 months and hopefully finding a suitable long term job. In those 6 months I may have contracts in different states and I’m not sure how a micro-corporation would work with that. Would I need to register the micro-corporation in whatever State I’m working at the time?

I want to break down his questions into two sections, is about his corporate structure for his professional work, the other is his specific question about having contracts in different states.

Business Friendly States

I often receive this question from well-intentioned doctors who have heard that it is better to have an LLC in a business-friendly state like Deleware or Nevada. While there is some truth to this, especially if you have real estate and other business holdings, it is not as beneficial for your professional services that would flow through a professional micro-corporation. Let's break it down.

Here are some key considerations for this Cardiologist:

  1. Licensing and Professional Regulations:

    • Some states have specific regulations governing the practice of certain professions, including medicine. It's crucial to ensure compliance with licensing requirements and regulations, and forming a professional corporation in the state of practice may be more straightforward.

  2. State Tax Implications:

    • The physician may be subject to state taxes in the state where they practice, regardless of where the business entity is formed. Maryland imposes its own taxes, and a Delaware LLC may still be subject to Maryland state taxes if the physician conducts business within the state. This dual taxation could result in additional administrative burdens. Forming the entity in the state of residence may simplify tax filings and compliance with state tax laws.

  3. Operational Convenience:

    • Maintaining a business entity in the state of practice can simplify day-to-day operations, such as obtaining local permits, interacting with state agencies, and complying with state-specific business laws.

  4. Legal Protections:

    • Both LLCs and professional corporations can provide liability protection, but the specific legal nuances may vary between states. It's essential to understand the liability protections offered by each entity type in the state where the physician practices.

  5. Registered Agent Requirements:

    • Nevada and Delaware, being popular business-friendly states, but require the appointment of a registered agent in those states, which can add additional costs and administrative complexity. A registered agent in your own state is more practical.

  6. Jurisdictional Issues:

    1. Delaware-based LLCs and Neveda LLCs may require foreign qualification to operate in Maryland, and other states, leading to additional paperwork, fees, and potential complexities.

  7. Cost Considerations:

    • The cost of forming and maintaining an entity in Nevada or Delaware, along with any additional requirements such as a registered agent, should be weighed against the benefits.

In summary, the advantages of forming an LLC in a business-friendly state like Nevada or Delaware turns out to not be as beneficial for the incorporation of your professional services. A professional corporation in your state of residence is typically best. Consulting with legal and financial professionals experienced in both the state of residence and potential business-friendly states is crucial to making an informed decision aligned with the physician's goals and regulatory requirements. If you are looking for additional guidance, please reach out to me for an inexpensive business consultation.

Personalized Professional Corporation vs Generic LLC

When weighing the decision between a personalized professional micro-corporation and a generic limited liability company (LLC) structure for your professional work, there are several benefits unique to a personalized micro-corporation. Both corporate structures provide liability protection, but there are two elements the cause me to lean towards a Professional Corporation structure for your medical services:

  • Professional Regulations:

    • PCs are often specifically designed for professionals like physicians, providing a recognized structure that aligns with the regulatory requirements of certain licensed professions.

  • Tax Considerations:

    • PCs have some tax advantages, allowing for deductions related to professional expenses, healthcare, and retirement plans. For high income earning professions like yourself—this is a significant advantage!

Marketplace Considerations

As you know, I am a big fan of young doctors creating a professional micro-corporation as the capstone of their long journey of medical training. This will provide you with dual options in the marketplace, including job stacking, and will also provide you with two tax efficiency channels

Just to make sure you're aware, if you're just starting out in the marketplace, it's important to understand that owning a single-member professional micro-corporation doesn't prevent you from owning shares in a partnership, group PC, or group PLLC. In fact, not only is it possible to do this through your micro-business structure, but it's actually better for you than if you owned the shares individually, thanks to the retained income efficiency through your PC.

Therefore, if you're beginning as an employee in private practice with the opportunity to buy in, I suggest doing so through your professional micro-corporation. Your individual PC would own the shares instead of you individually. If you're having trouble visualizing this concept, here's a picture.

Advantages Of A Personalized PC

But now let's explore some advantages of a personalized PC for doctors over a generic LLC:

  1. Professional Image: A personalized PC name that incorporates your profession or specialization (e.g., "Smith Medical Associates, PC" or "Pediatric Care Specialists, PC") enhances your professional image and credibility. It clearly communicates your expertise and professionalism to patients, colleagues, and the healthcare community.

  2. Personal Liability Protection: Similar to an LLC, a PC provides limited liability protection for shareholders, protecting personal assets from business debts and liabilities. This means that your personal wealth and assets are shielded from legal claims or debts arising from the business activities of the PC.

  3. Professional Liability Protection: A PC structure generally protects individual shareholders from being personally liable for the malpractice of other shareholders in the corporation. This separation of personal liability within a PC can offer additional protection for doctors against claims related to the professional negligence of their colleagues.

  4. Personalized Fringe Benefit Plans & Business Expenses That Benefit Your Household: As a high income earner you are able to embed within your PC benefits that truly are unique and benefit your family—whether it be large tax advantaged retirement funds or section 179 vehicle expense or private school educational reimbursement plans or or healthcare out of pocket expenses. In addition to this, you are able to share some business expenses that support your household such as phone, internet, home office, and vehicle expenses just to name a few.

  5. Tax Planning Flexibility: A PC can provide tax efficiency and flexibility compared to a generic LLC. It allows for the potential tax treatment of income as both salary and dividends, which can help optimize the tax situation for doctors and their practices. It's important to consult with a tax professional to fully understand the tax implications and benefits of a PC structure based on your specific circumstances.

  6. Estate Planning and Succession: A PC structure may better facilitate estate planning and business succession for doctors. It provides a framework for transferring ownership and management of the practice to other doctors or successors, ensuring continuity and long-term viability of the business.

It's important to consult with a business attorney and a tax professional who specialize in healthcare practices to fully understand the benefits, requirements, and implications of forming a personalized PC based on your specific needs and goals. They can provide personalized guidance, ensuring compliance with relevant regulations and maximizing the benefits of a professional corporation structure for doctors. You can check out our SimpliMD network for these type of professionals.

Different States

Our cardiologist's main concern was about working on locum contracts in states other than where the corporation is registered.

A doctor who is an independent contractor can engage in locum work in states outside of where their micro-corporation is established. Locum tenens work involves providing temporary medical services to fill in for other physicians in various locations. While the micro-corporation is registered in a specific state, as an independent contractor, you have the flexibility to provide services in different states, including engaging in locum tenens assignments.

When considering locum tenens work in states outside of your professional micro-corporation’s registered state, it's important to keep the following points in mind:

  1. Licensing Requirements: Each state has its own medical licensing requirements. Before practicing medicine in a particular state, you must ensure that you hold a valid license to practice medicine in that state. Depending on the state, obtaining a temporary or locum tenens license may be necessary.

  2. Tax Obligations: When working in different states, you may have tax obligations in each state where you provide services. This includes income tax filing and potentially sales tax obligations, depending on the nature of your services. It's crucial to understand the tax requirements of each state and comply with them accordingly.

  3. Malpractice Insurance: Ensure that your malpractice insurance coverage extends to the states where you will be providing locum tenens services. Contact your insurance provider to confirm if your policy covers practice in different states or if you need additional coverage for each state.

  4. Compliance with State Laws: Each state may have its own set of laws, regulations, and professional requirements for physicians. Familiarize yourself with the specific rules and regulations of the states where you plan to practice medicine, including any reporting obligations or restrictions.

  5. Contractual Agreements: When engaging in locum tenens work, you will likely enter into contractual agreements with healthcare facilities or staffing agencies. Review these contracts carefully, ensuring that they address the specifics of practicing in different states and outline the terms and responsibilities of all parties involved.

It's important to consult with an attorney, tax professional, or locum tenens agency that specializes in physician placements to ensure compliance with state-specific requirements, licensing, tax obligations, and other legal considerations when working in states outside of your professional micro-corporation’s registered state.

Note this last sentence, it alone should inform you that it would be worthwhile to engage with SimpliMD to tap into our professional network that will help you make sure that it is done correctly.

You can reach me for an inexpensive business consultation here to get you started and in exchange I’ll give you a free annual SimpliMD membership with the consultation.

If you planning to do locums like this cardiologist, I recommend Louis with Haye’s Locums as the agency of choice-you can reach them here.