Choosing the Right Business Entity Structure for an ASC

Ambulatory Surgery Centers (ASCs) are increasing in popularity. Opening an ASC requires one to make many decisions.  Before the ASC is operational, however, a great deal of decisions have to be made. A location has to be selected, employees have to be hired, and vendors have to be selected. But one of the most impactful decisions you will make regarding the ASC has nothing to do with these things. It is picking which business entity structure to have.

Choosing the right business entity structure for your ASC is one of the most important decisions you will make during this medical practice formation.  A well-thought-out business entity structure will provide long-term benefits, mitigate potential risks, and set the foundation for a successful and compliant ASC. Here is what to know about entity structures before deciding upon one for your ASC.

All About ASCs

ASCs are specialized healthcare facilities that focus on providing same-day surgical care, including diagnostic and preventive procedures. These centers are equipped to perform surgeries and treatments that do not require overnight stays, offering patients a more affordable alternative to traditional hospital settings. By allowing patients to return home the same day as their procedure, ASCs promote recovery in a comfortable, familiar environment, leading to higher patient satisfaction and reduced healthcare costs.

Business Entity Structures

“Business entity structure” refers to the legally defined framework under which an organization operates within a specific jurisdiction. It establishes the legal identity of the business, shaping how it is recognized by regulatory authorities, tax agencies, and potential investors. The chosen structure affects key aspects such as the ability to raise capital, the allocation of liability for debts and obligations, and the tax obligations imposed on the business and its owners.

Common business structures include sole proprietorships, partnerships, limited liability companies, and corporations, each offering distinct advantages and disadvantages in terms of liability protection, management control, and taxation. Selecting the appropriate structure is a critical decision that influences the organization’s financial responsibilities, legal obligations, and operational flexibility, impacting both short-term activities and long-term strategic planning. It involves more than just understanding the basic advantages and disadvantages of each structure. Rather, it requires careful consideration of various factors that will impact the ASC’s operation, financial stability, and long-term success. Here are the basics on these entity structures as you contemplate ASC ownership.

Sole Proprietorship

A sole proprietorship is the simplest business structure, granting the owner full control over operations and profits without requiring formal registration. The business and the owner are legally considered the same, meaning there is no separation between personal and business assets and liabilities. This exposes the owner to personal liability for business debts and legal claims, putting personal assets at risk. Despite this, sole proprietorships are appealing for entrepreneurs testing a business idea or operating low-risk ventures due to minimal startup costs and straightforward tax filing. 

Partnership

A partnership is a business structure that allows two or more individuals or entities to share ownership, management, and financial responsibilities. It provides flexibility in decision-making and profit-sharing but also carries potential risks, especially regarding liability. In general partnerships, all partners share profits and liabilities equally, and each partner is personally responsible for the business’s debts, exposing personal assets to potential claims. Limited partnerships, however, include both general partners, who manage the business and assume full liability, and limited partners, whose liability is restricted to their investment. Partnerships benefit from pass-through taxation, meaning business income is reported on personal tax returns, avoiding double taxation.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) combines features of both corporations and partnerships, offering flexibility and liability protection. In most cases, LLC owners are shielded from personal liability, meaning personal assets are protected if the business faces lawsuits or bankruptcy. Additionally, profits and losses can pass through to the owner’s personal income without incurring corporate taxes. However, LLC members are considered self-employed and must pay self-employment taxes.

Corporations

A corporation, or C corporation (C corp), is a separate legal entity from its owners, allowing it to earn profits, incur taxes, and be held legally liable independently of shareholders. While C corps offer strong liability protection, they are more expensive to establish and require extensive record-keeping and reporting. They face double taxation, first on corporate income and again when profits are distributed as dividends. However, they can continue operating despite changes in ownership and can raise capital by selling stock, making them appealing for medium- to high-risk ventures or those planning to go public.

An S corporation (S corp) avoids double taxation by passing profits and some losses directly to shareholders’ personal tax returns, where they are taxed at individual rates. Not all states treat S corps the same way; some impose taxes on profits above a set limit or treat them as C corps. To qualify for S corp status, a corporation must file with the IRS separately and meet specific eligibility criteria, such as limits on the number and type of shareholders. Like C corps, S corps maintain a separate legal existence, allowing them to continue operations even if ownership changes. S corps can be advantageous for businesses that meet IRS requirements and want to avoid double taxation while retaining the liability protection and continuity of a corporate structure. 

Which Business Entity Structure Is Best For An ASC?

Choosing the right business structure for a physician practice requires a good deal of evaluation. Income levels can dictate the most tax-efficient structure; for instance, S corporations may offer tax savings for high-income practices, while C corporations might be advantageous for reinvesting earnings. The number of owners also influences structure selection, as single-owner practices and multi-owner practices have different options. Some structures provide more operational flexibility, affecting decision-making and daily management. Long-term goals, such as bringing in partners or selling the practice, should also be considered, as certain structures are better suited for these transitions.

Contact an Attorney Experienced In Ambulatory Surgery Centers

Selecting the right business entity structure for an ASC is a strategic decision that requires careful consideration. Consulting with an attorney who understands ASCs can help you make the best choice. They can also provide tailored guidance based on the ASC’s specific business model and your long-term objectives. Contact our office today.