Choosing the right business structure is a crucial decision for acupuncture group practices in California. The choice of business entity determines how the acupuncture group practice is taxed, the extent of personal liability protection and personal asset protection available to the acupuncturist professionals, and the administrative requirements the acupuncturists will need to manage in operating the acupuncture group practice.

A recent article titled “What are the Business Structure Options for Solo Acupuncturists in California?” discussed the business structure options available to solo acupuncturists starting a solo acupuncture practice, however, for two or more acupuncturists starting a group acupuncture practice together in California, there are different options available.

This article provides an overview of the various business structure options available to acupuncturists starting a group acupuncture practice in California, helping acupuncturists to make an informed choice that aligns with their professional goals and liability concerns in the most tax efficient format possible.

Executive Summary: Putting the Conclusion First for Busy Acupuncturists

Summary of Practicing Acupuncture as a General Partnership

The primary benefit of a California General Partnership for acupuncturists is its simplicity. There are few legal formalities to establish a California General Partnership and tax reporting is equally straightforward. However, a California General Partnership is not a separate legal entity, which means that acupuncturist partners are jointly and severally liable for all debts, liabilities, obligations, and legal judgments (including malpractice liability) and the lack of a separate legal entity also means there is no distinction between personal and professional business assets for acupuncturist partners, meaning the debts, liabilities, and legal judgments for which acupuncturist partners are liable are satisfied from the personal assets of those acupuncturist partners.

Summary of Practicing with a California Professional Corporation

While slightly more complex than California General Partnerships, the complexity of a California Professional Acupuncture Corporation may be reduced by working with the experienced corporate attorneys at San Diego Corporate Law. As a separate legal entity, California Professional Acupuncture Corporations significantly reduce liability risks and are more tax efficient for most acupuncturists. For acupuncturists in high-liability practices, this reduction in risk can be substantial. The separate legal entity status of California Professional Acupuncture Corporations also means there is a distinction between personal and professional business assets for the acupuncturist, meaning the debts, liabilities, and legal judgments against the acupuncture practice are not generally satisfied from the personal assets of the acupuncturist owners, and owners are not personally liable for acts of malpractice by their co-owners, but they do remain personally liable for their own acts of malpractice.

Choosing Between a California General Partnership and a California Professional Acupuncture Corporation

For most acupuncturists, the California Professional Acupuncture Corporation is the right choice because the tax benefits coupled with limited liability protection and ability to separate personal assets from professional business assets far outweighs the increased administrative complexity compared to practicing acupuncture as a California General Partnership.

Contact San Diego Corporate Law for Assistance Selecting and Forming the Best Business Structure for Your Acupuncture Practice

Take the next step toward securing the ideal business structure for your acupuncture practice, whether that is a California Professional Acupuncture Corporation or another business structure. Contact the experienced corporate attorneys at San Diego Corporate Law today to schedule a consultation and receive personalized, expert guidance tailored to your needs. Our team is here to help you make informed decisions with confidence.

Practicing Acupuncture as a California General Partnership

Practicing acupuncture as a California General Partnership is the simplest and most straightforward business structure for two or more acupuncturists practicing together in California. A California General Partnership requires minimal paperwork to set up compared to other business entity options and offers flexibility in managing the acupuncture practice. However, along with these advantages come distinct disadvantages that acupuncturists must consider carefully before considering a California General Partnership as the business structure for their acupuncture practice.

Administrative Requirements of Practicing Acupuncture as a California General Partnership

One of the primary benefits of a California General Partnership for practicing acupuncture is the simplicity of establishing a California General Partnership and the continued simplicity of operating as a California General Partnership.

California General Partnerships require minimal effort to establish, but there are legal formalities involved. Typically, the initial steps of setting up a California General Partnership include optionally filing a Certificate of Partnership with the California Secretary of State, entering into a Partnership Agreement between all partners, obtaining a local business license to operate legally in the municipal jurisdiction in which the practice will operate and, if applicable, registering a fictitious business name (often referred to as a d/b/a).

Taxation of California General Partnerships for the Practice of Acupuncture

Tax considerations are a critical aspect to be examined when planning to practice acupuncture as a California General Partnership. California General Partnerships file informational tax returns and partners are subject to business income taxation, self-employment taxation, and additional Medicare taxes. Understanding how these taxes apply to acupuncture practices is essential for acupuncturists when choosing a business structure in which to operate their acupuncture practice.

Business Income Taxation When Practicing Acupuncture as a California General Partnership

California General Partnerships report their business income and expenses on informational tax returns, namely IRS Form 1065 and California Franchise Tax Board Form 565, however a California General Partnership does not pay California or federal income tax on its own net profit. Instead, each partner receives a Schedule K-1 from the IRS Form 1065 tax return reporting their distributive share of profits and losses of the California General Partnership, and each partner in turn reports this on their personal income tax return using Internal Revenue Service Form 1040 and California Franchise Tax Board Form 540 to pay taxes on the net income of the California General Partnership on their personal income tax return at their household personal income tax rate.

Self-Employment Tax When Practicing Acupuncture as a California General Partnership

Taxation of the partners of a California General Partnership is not tax efficient. One significant consideration for acupuncturist partners of a California General Partnership is self-employment tax. Since partners of a California General Partnership do not receive a salary from their acupuncture practice, they are responsible for paying self-employment taxes to cover Social Security and Medicare contributions. This self-employment tax is reported on Schedule SE, with the current rate at the time of this writing totaling 15.3% of net profit in addition to federal and state income taxes. However, a partner of a California General Partnership can deduct half of the self-employment tax paid as an adjustment on their personal tax return, which provides some financial relief.

Additional Medicare Tax When Practicing Acupuncture as a California General Partnership

High earning acupuncturist partners of California General Partnerships may also be subject to the Additional Medicare Tax. This tax applies to individuals whose income exceeds certain thresholds, which are determined based on filing status. For acupuncturist partners of a California General Partnership filing as single, the threshold is $200,000, while it is $250,000 for acupuncturist partners filing a joint tax return with a spouse. The Additional Medicare Tax rate is 0.9% and applies only to the earnings above the specified threshold. Partners of California General Partnerships must calculate and report this tax on Form 8959, ensuring compliance with Internal Revenue Service requirements. It is important for high earning acupuncturists to account for this additional tax in their financial planning to avoid unexpected liabilities.

Conclusions About Taxation of Acupuncturist Partners of California General Partnerships

Understanding the tax implications of a California General Partnership is integral when deciding which of the available business entities will be the most tax efficient, and understanding self-employment and the Additional Medicare Tax liabilities is the first step in planning and efficiently managing future tax liabilities.

Personal Liability Protection and Personal Asset Protection When Practicing Acupuncture as a California General Partnership

Practicing acupuncture as a California General Partnership also comes with challenges regarding personal liability protection and asset protection for partners because a California General Partnership is not a separate legal entity, and thus does not offer a legal distinction between the acupuncturists and the acupuncture practice.

Personal Liability for Acupuncturists When Practicing Acupuncture as California General Partnerships

One of the primary risks faced by acupuncturist partners of a California General Partnership is personal liability. The lack of distinction between the acupuncturist partners and the acupuncture California General Partnership professional practice means that each of the acupuncturist partners are jointly and severally personally liable for all debts, liabilities, obligations, and legal judgments incurred by the acupuncture practice personally, including claims for professional negligence, better known as malpractice, for errors and omissions.

Personal Asset Protection for Acupuncturists When Practicing Acupuncture as California General Partnerships

The lack of distinction between the acupuncturist and the acupuncture practice that makes personal liability a primary risk to acupuncturist partners of a California General Partnership also means that all assets of the acupuncturist partners, be they strictly personal assets or assets used in the acupuncture practice, are subject to claims by creditors and legal claimants against the personal assets of the acupuncturists (such as homes, bank accounts, investments, and other property).

Conclusions About Personal Liability and Asset Protection for Acupuncturist Partners of California General Partnerships

The exposure to personal liability for debts, liabilities, obligations, and legal judgments (including those for professional negligence) coupled with the inability to separate personal assets from professional business assets underscores the importance for acupuncturists choosing a business structure for their acupuncture practice to understand liability risks and take proactive measures to safeguard their personal wealth and future earnings from such claims.

Conclusions About Practicing Acupuncture as a California General Partnership

When deciding whether to establish a group acupuncture practice as a California General Partnership, it is essential to weigh the benefits and drawbacks of this business structure. While California General Partnerships offer some simplicity to acupuncturist partners, California General Partnerships come with significant risks and limitations. The advantages and disadvantages of operating a California General Partnership are compared below together with a recommendation for when a California General Partnership is the best legal structure for practicing acupuncture.

Advantages of California General Partnerships for Acupuncturists

The primary benefit of a California General Partnership is its simplicity. There are relatively few legal formalities to establish a California General Partnership for a group acupuncture practice.

Disadvantages of California General Partnerships for Acupuncturists

While California General Partnerships are simple to establish, they carry significant risks and are not tax efficient for most acupuncturists.

A California General Partnership is not a separate legal entity, which means that acupuncturist partners are personally liable for all debts, liabilities, obligations, and legal judgments (including malpractice liability). For acupuncturists in high liability acupuncture practices, this risk can be substantial.

The lack of a separate legal entity also means there is no distinction between personal and professional business assets for acupuncturist partners, meaning the debts, liabilities, and legal judgments for which an individual acupuncturist partner of a California General Partnership is liable are satisfied from the personal assets of that acupuncturist partner.

When is a California General Partnership the Right Business Structure for Practicing Acupuncture?

A California General Partnership can be an ideal option for two or more acupuncturists joining together to organize a small-scale acupuncture practice with the expectation of low net profit and low liability risks. However, before choosing to practice acupuncture as a California General Partnership, it is essential for the acupuncturist partners to weigh the benefits of simplicity against the risks of personal liability and the future growth of the acupuncture practice. Acupuncturist partners in high-risk practice areas or those who anticipate rapid growth may want to avoid practicing acupuncture as a California General Partnership in favor of a business entity that is more tax efficient and provides limited liability protection together with the separation of personal assets from professional business assets.

For a more detailed understanding of the differences between California General Partnerships and California Professional Acupuncture Corporations and when a California General Partnership is the best choice of business structure for a professional practice, see “When Not to Use a California Professional Acupuncture Corporation” and “What are the Disadvantages of General Partnerships in California?” for more information.

Practicing Acupuncture with a California Professional Acupuncture Corporation

Practicing acupuncture with a California Professional Acupuncture Corporation is not as simple or straightforward as practicing acupuncture as a California General Partnership, however, a California Professional Acupuncture Corporation provides the tax efficiency, limited liability protection, and separation of personal assets of the acupuncturist from the professional business assets of the acupuncture practice that California General Partnerships lack.

Administrative Requirements of Practicing Acupuncture with a California Professional Acupuncture Corporation

In order to enjoy the tax efficiency, limited liability protection, and separation of personal assets a California Professional Acupuncture Corporation provides, acupuncturists are faced with the complexity of establishing a California Professional Acupuncture Corporation. While this formation process is complex, acupuncturists may rely upon the experienced corporate attorneys at San Diego Corporate Law to draft and file all the required legal documents for the California Professional Acupuncture Corporation, leaving acupuncturists with essentially the same tasks they would undertake to establish a California General Partnership. It is also worth noting that legal fees and costs of forming a California Professional Acupuncture Corporation are usually qualified business expenses that are tax deductible.

In addition to the initial formation of a California Professional Acupuncture Corporation, and every year after the initial formation of a California Professional Acupuncture Corporation, a Statement of Information must be filed with the California Secretary of State and a shareholder and board of directors meeting must be held. Just as with the formation of a California Professional Acupuncture Corporation, the experienced attorneys at San Diego Corporate Law can assist in the annual requirements of practicing acupuncture with a California Professional Acupuncture Corporation.

Despite the additional administrative requirements of practicing acupuncture with a California Professional Acupuncture Corporation compared to practicing acupuncture as a California General Partnership, the right corporate attorney can make the difference in requirements comparable.

For a more detailed understanding of the administrative requirements for forming and maintaining a California Corporation, see “The 7 Steps for Forming a California Professional Acupuncture Corporation” for more information.

Taxation of California Professional Acupuncture Corporations

As with acupuncturist California General Partnerships, tax considerations are a critical aspect to be examined when planning to practice acupuncture with a California Professional Acupuncture Corporation. While acupuncturists practicing acupuncture with a California Professional Acupuncture Corporation are subject to business income taxation, payroll taxes for wages, and franchise taxes paid to the California Franchise Tax Board, acupuncturists practicing acupuncture with a California Professional Acupuncture Corporation are not subject to self-employment taxation or additional Medicare taxes. Understanding how these taxes apply to acupuncture practices is essential for acupuncturists choosing a business structure in which to operate their acupuncture practices.

Business Income Taxation When Practicing Acupuncture with a California Professional Acupuncture Corporation

A California Professional Acupuncture Corporation is by default taxed as a personal service corporation (sometimes referred to as a professional service corporation), which is essentially a C Corporation (commonly referred to as a C-Corp) wherein corporate taxes applied to corporate profits are taxed directly at the federal and state levels at the corporate income tax rate, and any distributed dividends are subject to taxation again at the shareholder level (referred to as “double taxation”). However, a California Professional Acupuncture Corporation may (and almost always should) elect to be treated as an S Corporation (commonly referred to as an S-Corp), which fundamentally changes how income is taxed, so this article will focus on S Corporation taxation of California Professional Acupuncture Corporations.

Electing S Corporation status alters the tax treatment by enabling pass-through taxation. This means the profits and losses of the California Professional Acupuncture Corporation after payment of a reasonable salary to the acupuncturist are passed directly to the acupuncturist shareholders who report those profits on their personal income tax returns to pay federal income tax and state income tax on the net profit of the California Professional Acupuncture Corporation to pay personal income tax of the net profits of the acupuncture practice.

For more information about the election of S Corporation status for a California Professional Acupuncture Corporation, see “Can a California Professional Acupuncture Corporation Be an S-Corp?” for more information.

Self-Employment Tax When Practicing Acupuncture with a California Professional Acupuncture Corporation

Unlike acupuncturist California General Partnerships, which require the acupuncturist partners to pay self-employment tax on their distributive share of the net profit of the professional practice, the acupuncturist-shareholders of a California Professional Acupuncture Corporation are not subject to self-employment taxes.

Instead of self-employment taxes on the entire net profit of the acupuncture practice, with a California Professional Acupuncture Corporation employee and employer contributions to payroll tax are only paid on the reasonable salary of the acupuncturists. While the sum of the employee and employer contributions total 15.3% (the same percentage as self-employment tax), the calculation of the tax is based upon the reasonable salaries of the acupuncturists only and not the net profit of the California Professional Acupuncture Corporation, which may result in significant annual tax savings.

Additional Medicare Tax When Practicing Acupuncture with a California Professional Acupuncture Corporation

As discussed above for acupuncturist California General Partnerships, the Additional Medicare Tax is an extra 0.9% tax applied to earned income exceeding certain thresholds. However, because the Additional Medicare Tax is only applied to earned income and the net profit of a California Professional Acupuncture Corporation is not deemed to be “earned” income, the Additional Medicare Tax would only be applicable to acupuncturists practicing acupuncture with a California Professional Acupuncture Corporation if the reasonable salary of the acupuncturists exceed those thresholds, meaning for all intents and purposes, practicing acupuncture with a California Professional Acupuncture Corporation does not subject acupuncturists to the Additional Medicare Tax.

Annual Franchise Tax for California Professional Acupuncture Corporations

California Professional Acupuncture Corporations must pay an annual franchise tax California General Partnerships do not pay an annual franchise tax. The franchise tax paid by a California Professional Acupuncture Corporation taxed as an S Corporation is 1.5% of net profit with a minimum of $800 annually. While this is a tax not paid by acupuncturist partners of a California General Partnership, but pales in comparison to the self-employment taxes and the Additional Medicare Taxes paid by acupuncturist partners in California General Partnerships.

Conclusions About Taxation of California Professional Acupuncture Corporations

Understanding the tax benefits of a California Professional Acupuncture Corporation is integral when deciding which of the available business entities for two or more professional to practice together will be the most tax efficient, and understanding self-employment and the Additional Medicare Tax liabilities is the first step in planning and efficiently managing future tax liabilities.

For a more detailed understanding of the taxation of California Professional Acupuncture Corporations, see “What Tax Benefits Does a California Professional Acupuncture Corporation Provide?” for more information.

Personal Liability Protection and Personal Asset Protection When Practicing Acupuncture with a California Professional Acupuncture Corporation

Practicing acupuncture with a California Professional Acupuncture Corporation, while more complex than practicing acupuncture as a California General Partnership, overcomes many of the personal liability protection and asset protection shortcomings of acupuncturist California General Partnerships. A California Professional Acupuncture Corporation is a separate legal entity distinct from the acupuncturists, thus offering a legal distinction between the acupuncturists and the acupuncture practice as well as personal and business assets of the acupuncturists.

Personal Liability Protection for Acupuncturists When Practicing Acupuncture with a California Professional Acupuncture Corporation

Practicing acupuncture with a California Professional Acupuncture Corporation resolves most of the risks faced by acupuncturist partners of California General Partnerships for personal liability. California Professional Acupuncture Corporations provide a separate legal entity distinct from the acupuncturist owners, meaning the acupuncturists are generally not personally liable for the debts, liabilities, obligations, and legal judgments incurred by the acupuncture practice.

Under California law, claims for professional negligence, better known as malpractice, for errors and omissions of acupuncturists are personal to those acupuncturists committing acts of malpractice and liability is not shielded by the existence of the California Professional Acupuncture Corporation. California Professional Corporations do shield acupuncturists from the malpractice liabilities created by the other acupuncturists in their acupuncture practice; acupuncturists are only personally liable for their own acts of malpractice. Malpractice is an insurable risk and appropriately apportioned professional liability insurance may be used to indemnify the acupuncturist from this risk of their own acts of malpractice.

Personal Asset Protection for Acupuncturists When Practicing Acupuncture with a California Professional Acupuncture Corporation

The separate legal entity and distinction between acupuncturists and the acupuncture practice provided by a California Professional Acupuncture Corporation means that, unlike California General Partnerships, a California Professional Acupuncture Corporation separates the personal assets of the acupuncturists from professional business assets of the acupuncture practice. Therefore, claims by creditors and legal claimants against the California Professional Acupuncture Corporation are generally limited to the professional business assets of the California Professional Acupuncture Corporation and are not satisfied against the personal assets (such as homes, bank accounts, investments, and other property) of the acupuncturists.

Conclusions About Personal Liability and Asset Protection When Practicing Acupuncture with a California Professional Acupuncture Corporation

The limitation of personal liability for debts, liabilities, obligations, and legal judgments against a California Professional Acupuncture Corporation coupled with the ability to separate personal assets from professional business assets makes the use of a California Professional Acupuncture Corporation the choice for acupuncturists who wish to limit their personal liability and protect their personal wealth and future earnings from most claims arising out of their acupuncture practice.

For a more detailed understanding of the liability protection and asset protection of California Professional Acupuncture Corporations, see “What Liability Protection Does a California Professional Acupuncture Corporation Provide?” for more information.

Conclusions About Practicing Acupuncture with a California Professional Acupuncture Corporation

When deciding if practicing acupuncture as a California Professional Acupuncture Corporation is worth the additional cost and administrative requirements, it is essential to weigh the benefits and drawbacks of this business structure. While California Professional Acupuncture Corporations are more complex, California Professional Acupuncture Corporations resolve many of the significant risks and limitations inherent to practicing acupuncture as a California General Partnership. The advantages and disadvantages of operating with a California Professional Acupuncture Corporation are compared below together with a recommendation for when a California Professional Acupuncture Corporation is the best legal structure for practicing acupuncture in a group acupuncture practice.

Advantages of California Professional Acupuncture Corporations

While practicing acupuncture as a California General Partnerships is simple to establish, doing so carries significant risks and is not tax efficient for most acupuncturists. California Professional Acupuncture Corporations significantly reduce liability risks and are more tax efficient for most acupuncturists.

A California Professional Acupuncture Corporation is a separate legal entity, which means the acupuncturists are generally shielded from personally liable for debts, liabilities, obligations, and legal judgments (other than the insurable risk of malpractice liability for the errors and omission of each of the acupuncturists for their own, individual acts of malpractice). For acupuncturists in high liability acupuncture practices, this reduction in risk can be substantial.

The separate legal entity status also means there is a distinction between personal and professional business assets for acupuncturists, meaning the debts, liabilities, and legal judgments against their acupuncture practice are not generally satisfied from the personal assets of the acupuncturists (other than for their own acts of malpractice).

Disadvantages of California Professional Acupuncture Corporations

The primary disadvantage of a California Professional Acupuncture Corporation is the relative complexity of formation and operation. However, acupuncturists may rely upon the experienced corporate attorneys at San Diego Corporate Law to draft and file all the required legal documents for establishing and maintaining the California Professional Acupuncture Corporation, leaving these acupuncturists with essentially the same tasks they would undertake to establish and maintain a California General Partnership.

When is a California Professional Acupuncture Corporation the Right Business Structure for Practicing Acupuncture?

A California Professional Acupuncture Corporation can be an ideal option for acupuncturists starting group acupuncture practices based upon factors such as tax efficiency, limited liability protection, and separation of personal assets from professional business assets that California Professional Acupuncture Corporations provide. Small-scale acupuncture practices with the expectation of revenue growth can benefit from starting as a California Professional Acupuncture Corporation to avoid the future need to reestablish the acupuncture practice as revenue grows. Similarly, small-scale acupuncture practices in high-risk practice areas may benefit from the limited liability protection, separation of personal assets from professional business assets of a California Professional Acupuncture Corporation, and for acupuncturists to avoid malpractice liability for the errors and omissions of the other acupuncturists in their group acupuncture practice regardless of revenue or profitability.

For a more detailed understanding of the differences between acupuncturist California General Partnerships and California Professional Acupuncture Corporations, and when a Acupuncture Professional Corporation in California is the best choice of business structure for a professional practice, see “When to Use a California Professional Acupuncture Corporation” for more information.

Acupuncturists in California May Not Practice Acupuncture as a Limited Liability Company (LLC) or Professional Limited Liability Company (PLLC)

A The experienced corporate attorneys at San Diego Corporate Law are frequently asked about limited liability companies and professional limited liability companies, so this will be briefly discussed here.

California law explicitly prohibits acupuncturists from operating their practices as Limited Liability Companies (LLCs) or Professional Limited Liability Companies (PLLCs). This prohibition may be found in California Corporations Code Section 17701.04(e), which reads:

“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.”

This restriction applies to all licensed professionals for which a California Professional Corporation may be formed. Instead, California requires acupuncturists who wish to operate in corporate form to utilize other types of business entities, such as California Acupuncture Corporations.

For a more detailed understanding of the prohibition on the use of LLCs for acupuncture practices in California, see “Can an Acupuncturist Practice Acupuncture Using a California LLC?” and “Can I Use a PLLC to Practice Acupuncture in California?” and for more information.

If an LLC or PLLC is currently being used for a group acupuncture practice in California, see “10 Steps to Convert LLC to Professional Acupuncture Corporation in California” and “Four Reasons Not to Convert LLC to Professional Acupuncture Corporation in California” or “12 Steps to Convert a PLLC to a California Professional Acupuncture Corporation” and “Four Reasons Not to Convert Foreign LLC or PLLC to a California Professional Acupuncture Corporation” for more information about bringing the professional practice into compliance with California law.