In the world of business formation, the term Veterinary PLLC, or Veterinary Professional Limited Liability Company, refers to a special legal business entity that is designed for licensed veterinarians for rendering professional services. However, navigating the specifics of using a Veterinary PLLC can be a challenge, particularly as business structure regulations vary from state to state. This article discusses the permissibility of utilizing Veterinary PLLCs in California, and the alternatives for veterinary practice owners.

Spoiler Alert: Veterinary Medicine Cannot Be Practiced Using Any LLC in California

If you are already practicing veterinary medicine in California as a California LLC or an LLC or PLLC from a state other than California, you should also read this article which includes information about how to get into compliance with California law for your veterinary practice.

The California Revised Uniform Limited Liability Company Act of the California Corporations Code Prohibits the Use of LLCs for the Provision of Professional Veterinary Services by Licensed Veterinarians in California

Use of a California LLC to Render Professional Veterinary Services in California

Neither a foreign nor a California limited liability company (LLC) may be used to render professional veterinary services in California. This comes as a surprise to many licensed veterinarians, as Veterinary Professional Limited Liability Companies are commonly used to render professional veterinary services in other states. However, California Corporations Code Section 17701.04(e) answers the question clearly regarding the use of a foreign or California LLC as a business entity for licensed veterinarians in California:

“Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state.”

Thus, licensed veterinarians may not use or form limited liability companies for the provision of professional veterinary services in California.

Use of a California PLLC to Render Professional Veterinary Services in California

Based upon California Corporations Code Section 17701.04(e), which prohibits the use of a foreign or California LLC to render professional veterinary services, because nothing in the California Corporations Code differentiates the idea of a California Veterinary PLLC from the California LLC, there is nothing in California law regarding LLC formation for the provision of professional veterinary services, and nothing establishes a California Veterinary PLLC as a business entity that may be formed under California law.

In short, there is no California Veterinary PLLC as the law currently stands at the time of this writing in 2024, and thus licensed veterinarians are unable to form a California Veterinary PLLC for their professional veterinary services. This is a significant departure from the norm in many other states, where Veterinary PLLCs are a commonly used business entities for licensed veterinarians.

Use of a Foreign Veterinary PLLC to Render Professional Veterinary Services in California

Based upon California Corporations Code Section 17701.04(e), which prohibits the use of a foreign or California LLC by licensed veterinarians to render professional veterinary services, and because the California Corporations Code does not differentiate between a between a foreign LLC or foreign PLLC for purposes of California Corporations Code Section 17701.04(e), neither a foreign LLC nor a foreign PLLC may be used by licensed veterinarians to render professional veterinary services in California.

Professional practices that are structured as Veterinary PLLCs in other states need to exercise extreme caution when offering professional veterinary services in California. The prohibition set forth in California Corporations Code Section 17701.04(e) means that out-of-state veterinary practices operating as Veterinary PLLCs in their home state may encounter legal restrictions if they wish to offer their professional veterinary services in California. Therefore, the licensed veterinarians practicing under these Veterinary PLLCs in their home states must not use their Veterinary PLLCs when rendering professional veterinary services in California and must do so either as a California Sole Proprietorship or California General Partnership by default, or by establishing a California Professional Veterinary Corporation, as will be discussed below.

What Business Structure Options Do Veterinarians Have in California?

As California does not allow the use of California LLCs, foreign LLCs, or foreign Veterinary PLLCs (and there is no such thing as a California PLLC!) for the provision of professional veterinary services in the State of California, California licensed veterinarians seeking to practice veterinary medicine in California must explore choose one of the permissible business structures, as discussed below.

Selecting the best permissible business structure option will depend on the specific professional veterinary services to be offered and the regulations governing those veterinary services. In the following subsections, we will introduce the various business entities that are permitted to render professional veterinary services in California, Sole Proprietorships, General Partnerships, and Professional Veterinary Corporations, each of which comes with its own set of advantages and limitations.

A California Licensed Veterinarian May Practice as a Sole Proprietorship in California

A Sole Proprietorship is a straightforward and uncomplicated business structure that may be utilized by licensed veterinarians in California. In a Sole Proprietorship, the individual veterinarian is the sole owner and operator of the veterinary practice.

Liability Protection for Licensed Veterinarian Sole Proprietors in California

Sole Proprietorships do not provide their owners with liability protection in California. In this type of business structure, the licensed veterinarian is personally responsible for all business debts, liabilities, obligations, and all legal judgments against the veterinary practice. This means that if the veterinary practice incurs a debt or is sued, the personal assets of the licensed veterinarian, such as their home, car, and personal bank accounts, can be used to settle these obligations.

The lack of liability protection is a significant disadvantage of operating a veterinary practice as a Sole Proprietorship and is a critical factor that a licensed veterinarian should consider when deciding on the most appropriate business structure for their veterinary practice in California.

Taxation of Licensed Veterinarian Sole Proprietors in California

In California, Veterinarian Sole Proprietorships are subject to pass-through taxation, meaning the business itself is not separately taxed. Instead, the income or loss of the business is passed through to the licensed veterinarian. The licensed veterinarian reports business income and expenses on Schedule C of their personal federal income tax return (Form 1040). The net profit or loss is then reported on the personal tax return of the licensed veterinarian and taxed at individual income tax rates.

In addition to income taxes, a licensed veterinarian practicing as a Sole Proprietorship in California is also subject to self-employment taxes, which cover Social Security and Medicare taxes. At the time of this writing in 2024, this is calculated on Schedule SE of the federal tax return at a rate of 15.3% on the first $168,600 of net income and 2.9% on all net profit in excess of the first $168,600.

At the state level, California has one of the highest state income tax rates in the country, and these rates apply to business income that passes through to the personal tax returns of the licensed veterinarian practicing as a Sole Proprietorship.

When Should a California Licensed Veterinarian Practice as a Sole Proprietorship in California?

A California licensed veterinarian should only consider practicing as a Sole Proprietorship in California when they are starting their veterinary practice and have limited financial resources, will not have employees, do not expect to grow their practice beyond just a few patients, and have substantial insurance coverage for the liabilities and risks associated with their veterinary practice.

However, as the veterinary practice grows, the licensed veterinarian should reconsider the use of a Sole Proprietorship for their veterinary practice as revenue increases, before hiring employees, or as professional liabilities increase. Upon the first to occur of increasing revenue, hiring employees, or increases in professional liability, it will be advantageous for the licensed veterinarian to explore other business structures that offer tax benefits and liability protection.

Two or More California Licensed Veterinarians Professionals May Practice as a General Partnership in California

A California General Partnership used for a veterinary practice is a business entity in which two or more licensed veterinarians join together to provide professional veterinary services in California. In such a setup, all veterinarian partners share equal rights and responsibilities in managing the business of the veterinary practice.

Liability Protection for Veterinarian General Partners in a California General Partnership

General Partnerships in California do not provide veterinarian partners with liability protection. This means each veterinarian partner has joint and several personal liability for all business debts, liabilities, obligations, and all legal judgments against the veterinary practice, including those incurred by other veterinarian partners which includes acts of malpractice by the other veterinarian partners. If the California General Partnership providing professional veterinary services is sued or incurs debt, the personal assets of each veterinarian partner, such as their home, vehicles, and personal savings, could be at risk, even if they are not found personally at fault for incurring the debt or committing the act of malpractice.

This lack of liability protection is a considerable drawback for California General Partnerships rendering professional veterinary services and something California licensed veterinarians should seriously factor into their decision when considering a California General Partnership for their veterinary practice in California.

Taxation of General Partnership Veterinary Practices in California

In California, veterinary practices structured as General Partnerships are taxed under the pass-through taxation system. This means the California General Partnership itself does not pay income taxes. Instead, the share of the profits or losses of the California General Partnership allocated to each veterinarian partner passes through to their personal income tax return. The individual veterinarian partners are responsible for paying federal and state income taxes on their allocated share of the profits of the California General Partnership at their individual income tax rates.

Each veterinarian partner is also required to pay self-employment taxes, which are Social Security and Medicare taxes for self-employed individuals. At the time of this writing in 2024, this is calculated on Schedule SE of the federal tax return at a rate of 15.3% on the first $168,600 of net income and 2.9% on all net profit in excess of the first $168,600.

California General Partnership earnings are also subject to the California state income tax. The state has a progressive income tax system with rates ranging from 1% to 13.3%, depending on the income of the taxpayer. These rates apply to the allocated share of the California General Partnership income allocated to each veterinarian partner and passed through to their personal tax returns.

When Should California Licensed Veterinarians Practice as a General Partnership in California?

Based upon the unlimited liability and tax structure of a California General Partnership, a California General Partnership should probably not be considered by licensed veterinarians practicing veterinary in California, as there are superior options for a professional practice in California that provide more personal liability protection than a California General Partnership for veterinary practices.

One or More California Licensed Veterinarians May Practice Veterinary Medicine as a California Professional Veterinary Corporation in California

California Professional Veterinary Corporations are a specialized form of California professional corporation pursuant to the California Corporations Code, California Business and Professions Code and the rules and regulations of the California Veterinary Medical Board, and other California laws designed specifically for licensed veterinarians who seek personal liability protection and tax benefits for their veterinary practice. A California Professional Veterinary Corporation is a separate legal entity distinct from its licensed veterinarians owner(s) who are the only licensed professionals permitted to be shareholders, referred to as licensed shareholders, which distinguishes it from a California Sole Proprietorship (which is an individual licensed veterinarian personally practicing veterinary medicine) or a California General Partnership (which is a group of licensed veterinarians practicing veterinary medicine together).

Liability Protection from a Professional Veterinary Corporation in California

In a California Professional Veterinary Corporation, the personal assets of the licensed shareholders are generally protected from business debts, liabilities, obligations, and legal judgments against the California Professional Veterinary Corporation. This means that in most instances, if the California Professional Veterinary Corporation is sued or incurs debt, the personal assets of the licensed shareholders (such as their home, vehicles, and personal savings) are shielded from creditors.

It is essential to note that this liability protection does not extend to professional malpractice claims against a licensed veterinarian. The personal asset protection applies only to debts and obligations incurred by the California Professional Veterinary Corporation, not to the individual actions of a licensed veterinarian. However, when two or more licensed veterinarians are practicing veterinary medicine in a California Professional Veterinary Corporation, a malpractice claim against one licensed veterinarian is not a malpractice claim against all the other licensed veterinarians and other licensed shareholders, which is a significant increase in personal liability protection for professional malpractice compared to a California General Partnership.

While the use of a California Professional Veterinary Corporation provides liability protection, it does not eliminate the requirement for individual professionals to maintain adequate malpractice insurance coverage or for the California Professional Veterinary Corporation to otherwise secure liability insurance for indemnification of its liabilities.

Taxation of Professional Veterinary Corporations in California

Professional Veterinary Corporations in California can opt to be taxed as personal service corporations subject to double taxation or S Corporations, which alters the tax landscape for these entities. As the vast majority of California Professional Veterinary Corporations elect S Corporation taxation, this article will focus on S Corporation taxation of California Professional Veterinary Corporations.

With S Corporation status, the California Professional Veterinary Corporation itself does not pay income tax. Instead, the income and losses of the California Professional Veterinary Corporation pass through to the personal income tax returns of the licensed shareholders.

To qualify for S Corporation status, the California Professional Veterinary Corporation must meet certain requirements including having no more than 100 shareholders, all of whom must be U.S. citizens or residents, and having only one class of stock.

One of the key advantages of S Corporation status for a California Professional Veterinary Corporation lies in the area of self-employment taxes. Salaries and wages paid to licensed shareholder-employees are subject to payroll taxes (Social Security and Medicare). However, any additional profits distributed to licensed shareholders are not subject to either payroll taxes or self-employment taxes. This can result in significant tax savings.

In terms of state taxes, California taxes S Corporations at a rate of 1.5% of their net income, with a minimum tax of $800 paid annually to the California Franchise Tax Board. Licensed shareholders in a California Professional Veterinary Corporation taxed as an S Corporation are also required to pay state income tax on their allocated share of the income of the California Professional Veterinary Corporation.

When Should California Licensed Veterinarians Practice Using a Professional Veterinary Corporation in California?

A California licensed veterinarian should consider practicing as a Professional Veterinary Corporation in California when seeking personal liability protection and tax benefits for their veterinary practice. This structure is particularly advantageous if the veterinarian wishes to shield their personal assets from business debts, liabilities, and obligations while also shielding themselves from legal judgments against the California Professional Veterinary Corporation, with the exception of individual professional malpractice claims against the licensed veterinarian personally.

If the licensed veterinarian can meet the requirements necessary to qualify for S Corporation status, they can enjoy significant tax advantages. This includes the potential for tax savings through the having no self-employment tax liability on profits distributed to licensed shareholders, and only payroll tax liabilities on a reasonable salary paid to them as an employee of the California Professional Veterinary Corporation.

Based upon the availability of both limited liability and tax benefits for the licensed veterinarian, the California Professional Veterinary Corporation should be the go-to business entity for California licensed veterinarians.

Secure Your Future with Legal Services from Experts in California Professional Business Structures: Let San Diego Corporate Law Guide Your Business Structure Selection

Choosing the right business structure for your veterinary practice in California is a critical step for every California licensed veterinarian. It can significantly influence your tax obligations, personal liability, and the overall success of your veterinary practice. At San Diego Corporate Law, our experienced legal team is well-versed in California business laws and can help you navigate the complexities of forming California professional corporations. Whether you are considering a California Professional Veterinary Corporation or other structure for your veterinary practice, we can provide the guidance necessary to make an informed decision. Contact us today to schedule a consultation and ensure your veterinary practice starts in California on solid legal footing.