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

Spoiler Alert: Speech Therapy Cannot Be Practiced Using Any LLC in California

If you are already practicing speech therapy 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 speech therapy practice.

The California Revised Uniform Limited Liability Company Act of the California Corporations Code Prohibits the Use of LLCs for the Provision of Professional Speech Therapy Services by Licensed Speech-Language Pathologists in California

Use of a California LLC to Render Professional Speech Therapy Services in California

Neither a foreign nor a California limited liability company (LLC) may be used to render professional speech therapy services in California. This comes as a surprise to many licensed speech-language pathologists, as Speech-Language Pathology Professional Limited Liability Companies are commonly used to render professional speech therapy 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 speech-language pathologists 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 speech-language pathologists may not use or form limited liability companies for the provision of professional speech therapy services in California.

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

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

Use of a Foreign Speech-Language Pathology PLLC to Render Professional Speech Therapy Services in California

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

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

What Business Structure Options Do Speech-Language Pathologists Have in California?

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

A California Licensed Speech-Language Pathologist May Practice as a Sole Proprietorship in California

A Sole Proprietorship is a straightforward and uncomplicated business structure that may be utilized by licensed speech-language pathologists in California. In a Sole Proprietorship, the individual language therapist is the sole owner and operator of the speech therapy practice.

Liability Protection for Licensed Speech-Language Pathologist Sole Proprietors in California

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

Taxation of Licensed Speech-Language Pathologist Sole Proprietors in California

In California, Speech-Language Pathologist 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 speech therapist. The licensed speech therapist 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 speech therapist and taxed at individual income tax rates.

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

When Should a California Licensed Speech-Language Pathologist Practice as a Sole Proprietorship in California?

A California licensed speech therapist should only consider practicing as a Sole Proprietorship in California when they are starting their speech therapy 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 speech therapy practice.

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

Two or More California Licensed Speech-Language Pathologists Professionals May Practice as a General Partnership in California

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

Liability Protection for Speech-Language Pathologist General Partners in a California General Partnership

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

Taxation of General Partnership Speech-Language Pathology Practices in California

In California, speech therapy 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 speech therapist partner passes through to their personal income tax return. The individual speech therapist 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 speech therapist 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 speech therapist partner and passed through to their personal tax returns.

When Should California Licensed Speech-Language Pathologists 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 speech-language pathologists practicing speech therapy 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 speech therapy practices.

One or More California Licensed Speech-Language Pathologists May Practice Speech Therapy as a California Professional Speech-Language Pathology Corporation in California

California Professional Speech-Language Pathology Corporations are a specialized form of California professional corporation pursuant to the California Corporation Code designed specifically for licensed speech-language pathologists who seek personal liability protection and tax benefits for their speech therapy practice. A California Professional Speech-Language Pathology Corporation is a separate legal entity distinct from its licensed speech-language pathologists owner(s) and permitted non-speech therapist owner(s) who are licensed professionals, referred to collectively as licensed shareholders, which distinguishes it from a California Sole Proprietorship (which is an individual licensed speech therapist personally practicing speech therapy) or a California General Partnership (which is a group of licensed speech-language pathologists practicing speech therapy together).

Liability Protection from a Professional Speech-Language Pathology Corporation in California

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

Taxation of Professional Speech-Language Pathology Corporations in California

Professional Speech-Language Pathology 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 Speech-Language Pathology Corporations elect S Corporation taxation, this article will focus on S Corporation taxation of California Professional Speech-Language Pathology Corporations.

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

To qualify for S Corporation status, the California Professional Speech-Language Pathology 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 Speech-Language Pathology 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 Speech-Language Pathology 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 Speech-Language Pathology Corporation.

When Should California Licensed Speech-Language Pathologists Practice Using a Professional Speech-Language Pathology Corporation in California?

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

If the licensed speech therapist 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 Speech-Language Pathology Corporation.

Based upon the availability of both limited liability and tax benefits for the licensed speech therapist, the California Professional Speech-Language Pathology Corporation should be the go-to business entity for California licensed speech-language pathologists.

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 speech therapy practice in California is a critical step for every California licensed speech therapist. It can significantly influence your tax obligations, personal liability, and the overall success of your speech therapy 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 a California professional corporation for practicing speech-language pathology, where in the form of a speech clinic, via teletherapy, or otherwise for speech pathology. Whether you are considering a California Professional Speech-Language Pathology Corporation or other structure for your speech therapy practice, we can provide the guidance necessary to make an informed decision. Contact us today to schedule a consultation and ensure your speech therapy practice starts in California on solid legal footing.