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

For purposes of this article, a licensed nurse refers to both a registered nurse and a nurse practitioner licensed to provide professional service pursuant to a professional license by the California Board of Registered Nursing.

Spoiler Alert: Nursing Cannot Be Practiced Using Any LLC in California

If you are already practicing nursing 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 nursing practice.

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

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

Neither a foreign nor a California limited liability company (LLC) may be used to render professional nursing services in California. This comes as a surprise to many licensed nurses, as Nursing Professional Limited Liability Companies are commonly used to render professional nursing 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 nurses 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 nurses may not use or form limited liability companies for the provision of professional nursing services in California.

Use of a California PLLC to Render Professional Nursing 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 nursing services, because nothing in the California Corporations Code differentiates the idea of a California Nursing PLLC from the California LLC, there is nothing in California law regarding LLC formation for the provision of professional nursing services, and nothing establishes a California Nursing PLLC as a business entity that may be formed under California law.

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

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

Based upon California Corporations Code Section 17701.04(e), which prohibits the use of a foreign or California LLC by licensed nurses to render professional nursing 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 nurses to render professional nursing services in California.

Professional practices that are structured as Nursing PLLCs in other states need to exercise extreme caution when offering professional nursing services in California. The prohibition set forth in California Corporations Code Section 17701.04(e) means that out-of-state nursing practices operating as Nursing PLLCs in their home state may encounter legal restrictions if they wish to offer their professional nursing services in California. Therefore, the licensed nurses practicing under these Nursing PLLCs in their home states must not use their Nursing PLLCs when rendering professional nursing 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 Nursing Corporation, as will be discussed below.

What Business Structure Options Do Nurses Have in California?

As California does not allow the use of California LLCs, foreign LLCs, or foreign Nursing PLLCs (and there is no such thing as a California PLLC!) for the provision of professional nursing services in the State of California, California licensed nurses seeking to practice nursing 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 nursing services to be offered and the regulations governing those nursing services. In the following subsections, we will introduce the various business entities that are permitted to render professional nursing services in California, including Sole Proprietorships, General Partnerships, and Professional Nursing Corporations, each of which comes with its own set of advantages and limitations.

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

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

Liability Protection for Licensed Nurse Sole Proprietors in California

Sole Proprietorships do not provide their owners with liability protection in California. In this type of business structure, the licensed nurse is personally responsible for all business debts, liabilities, obligations, and all legal judgments against the nursing practice. This means that if the nursing practice incurs a debt or is sued, the personal assets of the licensed nurse, 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 nursing practice as a Sole Proprietorship and is a critical factor that a licensed nurse should consider when deciding on the most appropriate business structure for their nursing practice in California.

Taxation of Licensed Nurse Sole Proprietors in California

In California, Nurse 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 nurse. The licensed nurse 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 nurse and taxed at individual income tax rates.

In addition to income taxes, a licensed nurse 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 nurse practicing as a Sole Proprietorship.

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

A California licensed nurse should only consider practicing as a Sole Proprietorship in California when they are starting their nursing 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 nursing practice.

However, as the nursing practice grows, the licensed nurse should reconsider the use of a Sole Proprietorship for their nursing 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 nurse to explore other business structures that offer tax benefits and liability protection.

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

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

Liability Protection for Nurse General Partners in a California General Partnership

General Partnerships in California do not provide nurse partners with liability protection. This means each nurse partner has joint and several personal liability for all business debts, liabilities, obligations, and all legal judgments against the nursing practice, including those incurred by other nurse partners which includes acts of malpractice by the other nurse partners. If the California General Partnership providing professional nursing services is sued or incurs debt, the personal assets of each nurse 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 nursing services and something California licensed nurses should seriously factor into their decision when considering a California General Partnership for their nursing practice in California.

Taxation of General Partnership Nursing Practices in California

In California, nursing 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 nurse partner passes through to their personal income tax return. The individual nurse 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 nurse 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 nurse partner and passed through to their personal tax returns.

When Should California Licensed Nurses 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 nurses practicing nursing 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 nursing practices.

One or More California Licensed Nurses May Practice Nursing as a California Professional Nursing Corporation in California

California Professional Nursing Corporations are a specialized form of California professional corporation designed specifically for licensed nurses who seek personal liability protection and tax benefits for their nursing practice. A California Professional Nursing Corporation is a separate legal entity distinct from its licensed nurses owner(s) and permitted non-nurse owner(s) who are licensed persons such as licensed physicians, licensed physician assistants, licensed psychologists, and licensed professional clinical counselors, referred to collectively as licensed shareholders, which distinguishes it from a California Sole Proprietorship (which is an individual licensed nurse personally practicing nursing) or a California General Partnership (which is a group of licensed nurses practicing nursing together).

Liability Protection from a Professional Nursing Corporation in California

In a California Professional Nursing Corporation, the personal assets of the licensed shareholders are generally protected from business debts, liabilities, obligations, and legal judgments against the California Professional Nursing Corporation. This means that in most instances, if the California Professional Nursing Corporation is sued or incurs debt, the personal assets of the licensed nurse owner(s) and other 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 nurse. The personal asset protection applies only to debts and obligations incurred by the California Professional Nursing Corporation, not to the individual actions of a licensed nurse. However, when two or more licensed nurses are practicing nursing in a California Professional Nursing Corporation, a malpractice claim against one licensed nurse is not a malpractice claim against all the other licensed nurses 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 Nursing Corporation provides liability protection, it does not eliminate the requirement for individual professionals to maintain adequate malpractice insurance coverage or for the California Professional Nursing Corporation to otherwise secure liability insurance for indemnification of its liabilities.

Taxation of Professional Nursing Corporations in California

Professional Nursing 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 Nursing Corporations elect S Corporation taxation, this article will focus on S Corporation taxation of California Professional Nursing Corporations.

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

To qualify for S Corporation status, the California Professional Nursing 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 Nursing 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 Nursing 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 Nursing Corporation.

When Should California Licensed Nurses Practice Using a Professional Nursing Corporation in California?

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

If the licensed nurse 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 Nursing Corporation.

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

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 nursing practice in California is a critical step for every California licensed nurse. It can significantly influence your tax obligations, personal liability, and the overall success of your nursing 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 the California Corporations Code, the California Business and Professions Code, and the rules of the California Secretary of State when forming California professional corporations. Whether you are considering a California Professional Nursing Corporation or other structure for your nursing practice, we can provide the guidance necessary to make an informed decision. Contact us today to schedule a consultation and ensure your nursing practice starts in California on solid legal footing.