Choosing the right business structure is a crucial decision for solo veterinarians in California. The choice of business entity determines how the veterinary practice is taxed, the extent of personal liability protection and personal asset protection available to the veterinarian, and the administrative requirements the veterinarian will need to manage in operating the veterinary practice.

A future article titled “What are the Business Structure Options for Two or More Veterinarians in California?” will discuss the additional options available when two or more veterinarians start practicing veterinary medicine together, however, for veterinarians practicing veterinary medicine solo in California, the options are limited to sole proprietorships and California Professional Veterinary Corporations.

This article provides an overview of the various business structure options available to veterinarians practicing veterinary medicine solo in California, helping these veterinarians 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 Veterinarians

Summary of Practicing Veterinary Medicine as a Sole Proprietor

The primary benefit of a sole proprietorship for veterinarians is its simplicity. There are few legal formalities to establish a sole proprietorship and tax reporting is equally straightforward. However, a sole proprietorship is not a separate legal entity, which means that veterinarian sole proprietors are personally liable for all debts, liabilities, obligations, and legal judgments (including malpractice liability) against their veterinary practice. The lack of a separate legal entity also means there is no distinction between personal and professional business assets for veterinarian sole proprietors, so the debts, liabilities, and legal judgments for which the veterinarian sole proprietor is liable are satisfied from the personal assets of the veterinarian.

Summary of Practicing Veterinary Medicine with a California Professional Veterinary Corporation

While inherently more complex than veterinarian sole proprietorships, the complexity of a California Professional Veterinary Corporation may be reduced by working with the experienced corporate attorneys at San Diego Corporate Law. As a separate legal entity, California Professional Veterinary Corporations significantly reduce liability risks and are more tax efficient for most veterinarians. For veterinarians in high-liability practices, this reduction in risk can be substantial. The separate legal entity status of California Professional Veterinary Corporations also means there is a distinction between personal and professional business assets for the veterinarian, meaning the debts, liabilities, and legal judgments against the veterinary practice are not generally satisfied from the personal assets of the veterinarian.

Choosing Between a Sole Proprietorship and a California Professional Veterinary Corporation

For most veterinarians, the California Professional Veterinary Corporation is the right chose 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 veterinary medicine as a sole proprietorship.

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

Take the next step toward securing the ideal business structure for your veterinary practice, whether that is a California Professional Veterinary 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 Veterinary Medicine as a Sole Proprietor

Practicing veterinary medicine as a sole proprietor is the simplest and most straightforward business structure for solo veterinarians in California. It requires minimal paperwork to set up compared to other business entity options and offers flexibility in managing the veterinary practice. However, along with these advantages come distinct disadvantages that veterinarians must consider carefully before considering sole proprietorship as the business structure for their veterinary practice.

Administrative Requirements of Practicing Veterinary Medicine as a Sole Proprietor

One of the primary benefits of a sole proprietorship for practicing veterinary medicine is the simplicity of establishing a sole proprietorship and the continued simplicity of operating as a sole proprietor.

Sole proprietorships require minimal effort to establish, with few legal formalities involved. Typically, the initial steps of setting up a sole proprietorship include 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).

Unlike other business structures, there is no need to file complex paperwork or create a formal business entity, which saves both time and money, but as discussed below, there are tradeoffs in exchange for this simplicity.

Taxation of Veterinarian Sole Proprietors

Tax considerations are a critical aspect to be examined when planning to practice veterinary medicine as a sole proprietor. Sole proprietors are subject to business income taxation, self-employment taxation, and additional Medicare taxes. Understanding how these taxes apply to veterinary practices is essential for veterinarians when choosing a business structure in which to operate their veterinary practice.

Business Income Taxation When Practicing Veterinary Medicine as a Sole Proprietor

For veterinarian sole proprietors, business income taxation is both simple and straightforward compared to that of other business entities. Sole proprietors report their business income and expenses on Schedule C (Profit or Loss from Business) to their personal tax return, using Internal Revenue Service Form 1040. This allows veterinarians to consolidate both personal and business income on a single tax form.

Self-Employment Tax When Practicing Veterinary Medicine as a Sole Proprietor

While simple and straightforward, taxation of veterinarian sole proprietors is not tax efficient. One significant consideration for veterinarian sole proprietors is self-employment tax. Since a sole proprietor does not receive a salary from their business, 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 sole proprietor can deduct half of the self-employment tax paid as an adjustment on their tax return, which provides some financial relief).

Additional Medicare Tax When Practicing Veterinary Medicine as a Sole Proprietor

High-earning veterinarian sole proprietors 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 veterinarian sole proprietors filing as single, the threshold is $200,000, while it is $250,000 for veterinarian sole proprietors 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. Sole proprietors must calculate and report this tax on Form 8959, ensuring compliance with Internal Revenue Service requirements. It is important for high-earning veterinarians to account for this additional tax in their financial planning to avoid unexpected liabilities.

Conclusions About Taxation of Veterinarian Sole Proprietors

Understanding the tax implications of a sole proprietorship 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 Veterinary Medicine as a Sole Proprietor

Practicing veterinary medicine as a sole proprietor, while simple, also comes with challenges regarding personal liability protection and asset protection because a sole proprietorship is not a separate legal entity, and thus does not offer a legal distinction between the veterinarian and the veterinary practice.

Personal Liability for Veterinarians When Practicing Veterinary Medicine as a Sole Proprietor

One of the primary risks faced by veterinarian sole proprietors is personal liability. The lack of distinction between the veterinarian and the veterinary practice means that the veterinarian sole proprietor is personally liable for all debts, liabilities, obligations, and legal judgments incurred by the veterinary practice personally, including claims for professional negligence, better known as malpractice, for errors and omissions.

Personal Asset Protection for Veterinarians When Practicing Veterinary Medicine as Sole Proprietors

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

Conclusions About Personal Liability and Asset Protection for Veterinarian Sole Proprietors

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 veterinarians choosing a business structure for their veterinary practice to understand liability risks and take proactive measures to safeguard their personal wealth and future earnings from such claims.

Conclusions About Practicing Veterinary Medicine as a Sole Proprietor

When deciding whether to practice veterinary medicine as a sole proprietor, it is essential to weigh the benefits and drawbacks of this business structure. While veterinarian sole proprietorships offer simplicity to veterinarians, veterinarian sole proprietorships come with significant risks and limitations. The advantages and disadvantages of practicing veterinary medicine as a sole proprietor are compared below together with a recommendation for when a sole proprietorship is the best legal structure for practicing veterinary medicine.

Advantages of Sole Proprietorship for Veterinarians

The primary benefit of a sole proprietorship for practicing veterinary medicine is its simplicity. There are few legal formalities to establish a sole proprietorship and tax reporting is equally straightforward.

Disadvantages of Sole Proprietorship for Veterinarians

While sole proprietorships are simple to establish, they carry significant risks and are not tax efficient for most veterinarians.

A sole proprietorship is not a separate legal entity, which means that veterinarian sole proprietors are personally liable for all debts, liabilities, obligations, and legal judgments (including malpractice liability). For veterinarians in high-liability veterinary 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 veterinarian sole proprietors, meaning the debts, liabilities, and legal judgments for which the veterinarian sole proprietor is liable are satisfied from the personal assets of the veterinarian.

When is a Sole Proprietorship the Right Business Structure for Practicing Veterinary Medicine?

A sole proprietorship can be an ideal option for veterinarians starting small-scale veterinary practices with the expectation of low net profit and low liability risks. However, before choosing to practice veterinary medicine as a sole proprietor, it is essential to weigh the benefits of simplicity against the risks of personal liability and the future growth of the veterinary practice. For veterinarians in high-risk veterinary practice areas or those who anticipate growth in their veterinary practice may want to avoid practicing veterinary medicine as a sole proprietorship 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 professional sole proprietorships and California Professional Veterinary Corporations and when a sole proprietorship is the best choice of business structure for veterinary practices, see “When Not to Use a California Professional Veterinary Corporation” for more information.

Practicing Veterinary Medicine with a California Professional Veterinary Corporation

Practicing veterinary medicine with a California Professional Veterinary Corporation is not as simple or straightforward as practicing veterinary medicine as a sole proprietor, however, a California Professional Veterinary Corporation provides the tax efficiency, limited liability protection, and separation of personal assets of the veterinarian from the professional business assets of the veterinary practice that veterinarian sole proprietorships lack.

Administrative Requirements of Practicing Veterinary Medicine with a California Professional Veterinary Corporation

In order to enjoy the tax efficiency, limited liability protection, and separation of personal assets a California Professional Veterinary Corporation provides, veterinarians are faced with the complexity of establishing a California Professional Veterinary Corporation. While this formation process is complex, veterinarians 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 Veterinary Corporation, leaving veterinarians with essentially the same tasks they would undertake to establish a sole proprietorship. It is also worth noting that legal fees and costs of forming a California Professional Veterinary Corporation are usually qualified business expenses that are tax deductible.

In addition to the initial formation of a California Professional Veterinary Corporation, every year after the initial formation of a California Professional Veterinary 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 Veterinary Corporation, San Diego Corporate Law can assist in the annual requirements of practicing veterinary medicine with a California Professional Veterinary Corporation.

Despite the additional administrative requirements of practicing veterinary medicine with a California Professional Veterinary Corporation compared to practicing veterinary medicine as a sole proprietorship, an experienced 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 Veterinary Corporation” for more information.

Taxation of California Professional Veterinary Corporations

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

Business Income Taxation When Practicing Veterinary Medicine with a California Professional Veterinary Corporation

A California Professional Veterinary 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 against the individuals receiving the dividends (referred to as “double taxation”). However, a California Professional Veterinary 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. This article will focus on S Corporation taxation of California Professional Veterinary Corporations.

Electing S Corporation status alters the tax treatment by enabling pass-through taxation. This means the profits and losses of the California Professional Veterinary Corporation after payment of a reasonable salary to the veterinarian are passed directly to the veterinarian as the shareholder who in turn reports 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 Veterinary Corporation to pay personal income tax of the net profits of the veterinary practice.

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

Self-Employment Tax When Practicing Veterinary Medicine with a California Professional Veterinary Corporation

Unlike veterinarian sole proprietorships, which require the veterinarian sole proprietor to pay self-employment tax on the entire net profit of the professional practice, the veterinarian-shareholder of a California Professional Veterinary Corporation is not subject to self-employment taxes.

Instead of self-employment taxes on the entire net profit of the veterinary practice, with a California Professional Veterinary Corporation employee and employer contributions to payroll tax are only paid on the reasonable salary of the veterinarian. 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 salary of the veterinarian only and not the net profit of the California Professional Veterinary Corporation, which may result in significant annual tax savings compared to a sole proprietorship.

Additional Medicare Tax When Practicing Veterinary Medicine with a California Professional Veterinary Corporation

As discussed above for veterinarian sole proprietorships, 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 Veterinary Corporation is not deemed to be “earned” income, the Additional Medicare Tax would only be applicable to veterinarians practicing veterinary medicine with a California Professional Veterinary Corporation if the reasonable salary of the veterinarian exceeded the thresholds, meaning for all intents and purposes, practicing veterinary medicine with a California Professional Veterinary Corporation does not subject veterinarians to the Additional Medicare Tax.

Annual Franchise Tax for California Professional Veterinary Corporations

California Professional Veterinary Corporations must pay an annual franchise tax that veterinarian sole proprietorships do not pay. The franchise tax paid by a California Professional Veterinary 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 veterinarian sole proprietorships, the annual franchise tax is very small in comparison to self-employment taxes and the Additional Medicare Taxes paid by veterinarian sole proprietors.

Conclusions About Taxation of California Professional Veterinary Corporations

Understanding the tax benefits of a California Professional Veterinary Corporation 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.

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

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

Practicing veterinary medicine with a California Professional Veterinary Corporation, while more complex than practicing veterinary medicine as a sole proprietorship, overcomes many of the personal liability protection and asset protection shortcomings of veterinarian sole proprietorships. A California Professional Veterinary Corporation is a separate legal entity distinct from the veterinarian, thus offering a legal distinction between the veterinarian and the veterinary practice as well as personal and business assets of the veterinarian.

Personal Liability Protection for Veterinarians When Practicing Veterinary Medicine with a California Professional Veterinary Corporation

Practicing veterinary medicine with a California Professional Veterinary Corporation resolves most of the risks faced by veterinarian sole proprietors for personal liability. California Professional Veterinary Corporations provide a separate legal entity distinct from the veterinarian, meaning the veterinarian is generally not personally liable for the debts, liabilities, obligations, and legal judgments incurred by the veterinary practice.

Under California law, claims for professional negligence, better known as malpractice, for errors and omissions of veterinarians are personal to the veterinarians and not shielded by the existence of the California Professional Veterinary Corporation, however, malpractice is an insurable risk and appropriately apportioned professional liability insurance may be used to indemnify the veterinarian from this risk.

Personal Asset Protection for Veterinarians When Practicing Veterinary Medicine with a California Professional Veterinary Corporation

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

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

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

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

Conclusions About Practicing Veterinary Medicine with a California Professional Veterinary Corporation

When deciding if practicing veterinary medicine as a California Professional Veterinary 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 Veterinary Corporations are more complex, California Professional Veterinary Corporations resolve many of the significant risks and limitations inherent to practicing veterinary medicine as a sole proprietorship. The advantages and disadvantages of operating with a California Professional Veterinary Corporation are compared below together with a recommendation for when a California Professional Veterinary Corporation is the best legal structure for practicing veterinary medicine.

Advantages of California Professional Veterinary Corporations

While practicing veterinary medicine as a sole proprietorship is simple to establish, doing so carries significant risks and is not tax efficient for most veterinary medicine. California Professional Veterinary Corporations significantly reduce liability risks and are more tax efficient for most veterinary medicine.

A California Professional Veterinary Corporation is a separate legal entity, which means the veterinarian is generally shielded from personally liable for business debts, liabilities, obligations, and legal judgments (other than the insurable risk of malpractice liability). For veterinarians in high-liability veterinary 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 veterinarians, meaning the business debts, liabilities, and legal judgments against their veterinary practice are not generally satisfied from the personal assets of the veterinarian.

Disadvantages of California Professional Veterinary Corporations

The primary benefit of a sole proprietorship is its simplicity, and in turn the primary disadvantage of a California Professional Veterinary Corporation is the relative complexity of formation and operation. However, veterinarians 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 Veterinary Corporation, leaving these veterinarians with essentially the same tasks they would undertake to establish and maintain a sole proprietorship.

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

A California Professional Veterinary Corporation can be an ideal option for veterinarians starting veterinary practices based upon the tax efficiency, limited liability protection, and separation of personal assets from professional business assets that California Professional Veterinary Corporations provide. Small-scale veterinary practices with the expectation of revenue growth can benefit from starting as a California Professional Veterinary Corporation to avoid the future need to reestablish the veterinary practice as revenue grows. Similarly, small-scale veterinary practices in high-risk practice areas may benefit from the limited liability protection and separation of personal assets from professional business assets provided by a California Veterinary Corporation regardless of revenue or profitability.

For a more detailed understanding of the differences between veterinarian sole proprietorships and California Professional Veterinary Corporations, and when a California Professional Corporation is the best choice of business structure for a professional practice, see “When to Use a California Professional Veterinary Corporation” and “S-Corp versus Professional Veterinary Medical Corporation in California” for more information.

Veterinarians in California May Not Practice Veterinary Medicine 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 topic will be briefly discussed here.

California law explicitly prohibits veterinarians 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.”

Instead, California requires veterinarians who wish to operate in corporate form to utilize other types of business entities, such as California Professional Veterinary Corporations.

For a more detailed understanding of the prohibition on the use of LLCs for veterinary practices in California, see “Can a Veterinarian Practice Veterinary Medicine Using a California LLC?” and “Can I Use a PLLC to Practice Veterinary Medicine in California?” and for more information.

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