What Type of Business Should You Create for Your Practice?

One of the first legal decisions you’ll face when starting your own practice is how to structure your business. This choice affects your taxes, your liability, how you pay yourself, and even how you're perceived by patients, lenders, and partners.

Here’s a straightforward overview of the most common structures for nurse practitioners — including what each one means, why it matters, and which might be the best fit for your practice.

Sole Proprietorship

Definition: You and your business are legally the same. No separate business entity is formed.

Pros:

• Easiest and cheapest to start — no formal business filing required beyond necessary state licensure and a local business license

• All income flows directly to you

• Minimal administrative burden

Cons:

• No liability protection — your personal assets are at risk if your business is sued or incurs debt

• Cannot bring on partners or employees easily

• May seem less professional to banks and patients

Best for: Very small solo practices or early-stage ventures where liability risk is minimal — such as telehealth coaching or consulting without hands-on care.

Limited Liability Company (LLC)

Definition: A separate legal entity that protects your personal assets and allows flexible tax options. Owned by one person (single-member LLC) or more (multi-member LLC).

Pros:

• Personal liability protection — separates your personal assets from business risks

• Flexible management structure and fewer formalities than a corporation

• Can be taxed as a sole proprietorship, partnership, or elect S corporation status

• Easier to scale, hire, or bring on partners

Cons:

• Requires formation through your state (filing fees, annual renewals vary by state)

• Requires separate business finances and records

Best for: Most NPs starting their own practice. An LLC offers a solid balance of protection, flexibility, and professionalism — and is recognized in all 50 states.

S Corporation (S Corp election)

Definition: A tax classification you can elect for your LLC or corporation. It allows you to split income between salary and distributions, potentially reducing self-employment taxes.

Pros:

• May offer tax savings if your business profits are high enough (generally $75k+ net income)

• Owners still receive liability protection (if formed as an LLC or corporation)

• Earnings above your reasonable salary are not subject to self-employment tax

Cons:

• More IRS and payroll compliance required

• Must run payroll for yourself and file extra tax forms

• Requires accurate accounting and potentially a bookkeeper or CPA

Best for: Established practices with consistent profit that can justify the additional complexity in exchange for tax savings.

Note: An S Corp is not a type of business entity — it’s a tax status you elect with the IRS after forming an LLC or corporation.

Professional LLC (PLLC) or Professional Corporation (PC)

Definition: Certain states require licensed professionals, like NPs, to form a professional entity rather than a general LLC or corporation.

Pros:

• Provides the same benefits as an LLC or PC (liability protection, tax options)

• Meets state-specific legal requirements for practicing as a licensed healthcare provider

Cons:

• Only required in some states — and only for licensed services

• Somewhat stricter ownership rules (may need all owners to be licensed professionals)

Best for: NPs in states that require professional entities to legally offer medical services. Check with your state’s licensing board or a local attorney to determine if this applies to you.

Final Thoughts

• Most NPs start with an LLC, then elect S Corp status later if and when it makes financial sense.

• Separate your finances early — open a business bank account, track expenses, and avoid mixing funds.

• Check your state’s laws — professional entity rules, naming restrictions, and formation requirements vary widely.

• Consult a CPA or healthcare business attorney before filing anything. This one step can save you time, money, and future stress.

Choosing the right structure is less about finding a perfect answer and more about choosing what supports your practice right now — while allowing room to grow.