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

A recent article titled “What are the Business Structure Options for Solo Speech-Language Pathologists in California?” discussed the business structure options available to solo speech therapists starting a solo speech therapy practice, however, for two or more speech therapists starting a group speech therapy practice together in California, there are different options available.

This article provides an overview of the various business structure options available to speech therapists starting a group speech therapy practice in California, helping speech therapists 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 Speech Therapists

Summary of Practicing Speech Therapy as a General Partnership

The primary benefit of a California General Partnership for speech therapists 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 speech therapist 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 speech therapist partners, meaning the debts, liabilities, and legal judgments for which speech therapist partners are liable are satisfied from the personal assets of those speech therapist partners.

Summary of Practicing with a California Professional Corporation

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

For most speech therapists, the California Professional Speech-Language Pathology Corporation is the right choice because the tax benefits coupled with limited liability protection and ability to separate personal assets from professional business assets and business bank accounts far outweighs the increased administrative complexity compared to practicing speech therapy as a California General Partnership. An experienced corporate attorney and tax advisor of your choosing can assist with a personalized plan for the growth of your speech therapy practice.

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

Take the next step toward securing the ideal business structure for your speech therapy practice, whether that is a California Professional Speech-Language Pathology 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 Speech Therapy as a California General Partnership

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

Administrative Requirements of Practicing Speech Therapy as a California General Partnership

One of the primary benefits of a California General Partnership for practicing speech therapy 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 Speech Therapy

Tax considerations are a critical aspect to be examined when planning to practice speech therapy 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 speech therapy practices is essential for speech therapists when choosing a business structure in which to operate their speech therapy practice.

Business Income Taxation When Practicing Speech Therapy 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 Speech Therapy as a California General Partnership

Taxation of the partners of a California General Partnership is not tax efficient. One significant consideration for speech therapist partners of a California General Partnership is self-employment tax. Since partners of a California General Partnership do not receive a salary from their speech therapy 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 Speech Therapy as a California General Partnership

High earning speech therapist 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 speech therapist partners of a California General Partnership filing as single, the threshold is $200,000, while it is $250,000 for speech therapist 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 speech therapists to account for this additional tax in their financial planning to avoid unexpected liabilities.

Conclusions About Taxation of Speech Therapist 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 Speech Therapy as a California General Partnership

Practicing speech therapy 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 speech therapists and the speech therapy practice.

Personal Liability for Speech Therapists When Practicing Speech Therapy as California General Partnerships

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

Personal Asset Protection for Speech Therapists When Practicing Speech Therapy as California General Partnerships

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

Conclusions About Personal Liability and Asset Protection for Speech Therapist 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 speech therapists choosing a business structure for their speech therapy practice to understand liability risks and take proactive measures to safeguard their personal wealth and future earnings from such claims.

Conclusions About Practicing Speech Therapy as a California General Partnership

When deciding whether to establish a group speech therapy 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 speech therapist 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 speech therapy.

Advantages of California General Partnerships for Speech Therapists

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 speech therapy practice.

Disadvantages of California General Partnerships for Speech Therapists

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

A California General Partnership is not a separate legal entity, which means that speech therapist partners are personally liable for all debts, liabilities, obligations, and legal judgments (including malpractice liability). For speech therapists in high liability speech therapy 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 speech therapist partners, meaning the debts, liabilities, and legal judgments for which an individual speech therapist partner of a California General Partnership is liable are satisfied from the personal assets of that speech therapist partner.

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

A California General Partnership can be an ideal option for two or more speech therapists joining together to organize a small-scale speech therapy practice with the expectation of low net profit and low liability risks. However, before choosing to practice speech therapy as a California General Partnership, it is essential for the speech therapist partners to weigh the benefits of simplicity against the risks of personal liability and the future growth of the speech therapy practice. Speech Therapist partners in high-risk practice areas or those who anticipate rapid growth may want to avoid practicing speech therapy 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 Speech-Language Pathology 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 Speech-Language Pathology Corporation” and “What are the Disadvantages of General Partnerships in California?” for more information.

Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

Practicing speech therapy with a California Professional Speech-Language Pathology Corporation is not as simple or straightforward as practicing speech therapy as a California General Partnership, however, a California Professional Speech-Language Pathology Corporation provides the tax efficiency, limited liability protection, and separation of personal assets of the speech therapist from the professional business assets of the speech therapy practice that California General Partnerships lack.

Administrative Requirements of Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

In order to enjoy the tax efficiency, limited liability protection, and separation of personal assets a California Professional Speech-Language Pathology Corporation provides, speech therapists are faced with the complexity of establishing a California Professional Speech-Language Pathology Corporation. While this formation process is complex, speech therapists 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 Speech-Language Pathology Corporation, leaving speech therapists 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 Speech-Language Pathology Corporation are usually qualified business expenses that are tax deductible.

In addition to the initial formation of a California Professional Speech-Language Pathology Corporation, and every year after the initial formation of a California Professional Speech-Language Pathology 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 Speech-Language Pathology Corporation, the experienced attorneys at San Diego Corporate Law can assist in the annual requirements of practicing speech therapy with a California Professional Speech-Language Pathology Corporation.

Despite the additional administrative requirements of practicing speech therapy with a California Professional Speech-Language Pathology Corporation compared to practicing speech therapy 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 Speech-Language Pathology Corporation” for more information.

Taxation of California Professional Speech-Language Pathology Corporations

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

Business Income Taxation When Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

A California Professional Speech-Language Pathology 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 Speech-Language Pathology 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 Speech-Language Pathology Corporations.

Electing S Corporation status alters the tax treatment by enabling pass-through taxation. This means the profits and losses of the California Professional Speech-Language Pathology Corporation after payment of a reasonable salary to the speech therapist are passed directly to the speech therapist 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 Speech-Language Pathology Corporation to pay income tax of the net profits of the speech therapy practice.

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

Self-Employment Tax When Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

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

Instead of self-employment taxes on the entire net profit of the speech therapy practice, with a California Professional Speech-Language Pathology Corporation employee and employer contributions to payroll tax are only paid on the reasonable salary of the speech therapists. 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 speech therapists only and not the net profit of the California Professional Speech-Language Pathology Corporation, which may result in significant annual tax savings.

Additional Medicare Tax When Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

As discussed above for speech therapist 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 Speech-Language Pathology Corporation is not deemed to be “earned” income, the Additional Medicare Tax would only be applicable to speech therapists practicing speech therapy with a California Professional Speech-Language Pathology Corporation if the reasonable salary of the speech therapists exceed those thresholds, meaning for all intents and purposes, practicing speech therapy with a California Professional Speech-Language Pathology Corporation does not subject speech therapists to the Additional Medicare Tax.

Annual Franchise Tax for California Professional Speech-Language Pathology Corporations

California Professional Speech-Language Pathology 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 Speech-Language Pathology 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 speech therapist partners of a California General Partnership, but pales in comparison to the self-employment taxes and the Additional Medicare Taxes paid by speech therapist partners in California General Partnerships.

Conclusions About Taxation of California Professional Speech-Language Pathology Corporations

Understanding the tax benefits of a California Professional Speech-Language Pathology 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 Speech-Language Pathology Corporations, see “What Tax Benefits Does a California Professional Speech-Language Pathology Corporation Provide?” for more information.

Personal Liability Protection and Personal Asset Protection When Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

Practicing speech therapy with a California Professional Speech-Language Pathology Corporation, while more complex than practicing speech therapy as a California General Partnership, overcomes many of the personal liability protection and asset protection shortcomings of speech therapist California General Partnerships. A California Professional Speech-Language Pathology Corporation is a separate legal entity distinct from the speech therapists, thus offering a legal distinction between the speech therapists and the speech therapy practice as well as personal and business assets of the speech therapists.

Personal Liability Protection for Speech Therapists When Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

Practicing speech therapy with a California Professional Speech-Language Pathology Corporation resolves most of the risks faced by speech therapist partners of California General Partnerships for personal liability. California Professional Speech-Language Pathology Corporations provide a separate legal entity distinct from the speech therapist owners, meaning the speech therapists are generally not personally liable for the debts, liabilities, obligations, and legal judgments incurred by the speech therapy practice.

Under California law, claims for professional negligence, better known as malpractice, for errors and omissions of speech therapists are personal to those speech therapists committing acts of malpractice and liability is not shielded by the existence of the California Professional Speech-Language Pathology Corporation. California Professional Corporations do shield speech therapists from the malpractice liabilities created by the other speech therapists in their speech therapy practice; speech therapists 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 speech therapist from this risk of their own acts of malpractice.

Personal Asset Protection for Speech Therapists When Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

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

Conclusions About Personal Liability and Asset Protection When Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

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

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

Conclusions About Practicing Speech Therapy with a California Professional Speech-Language Pathology Corporation

When deciding if practicing speech therapy as a California Professional Speech-Language Pathology 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 Speech-Language Pathology Corporations are more complex, California Professional Speech-Language Pathology Corporations resolve many of the significant risks and limitations inherent to practicing speech therapy as a California General Partnership. The advantages and disadvantages of operating with a California Professional Speech-Language Pathology Corporation are compared below together with a recommendation for when a California Professional Speech-Language Pathology Corporation is the best legal structure for practicing speech therapy in a group speech therapy practice.

Advantages of California Professional Speech-Language Pathology Corporations

While practicing speech therapy as a California General Partnerships is simple to establish, doing so carries significant risks and is not tax efficient for most speech therapists. California Professional Speech-Language Pathology Corporations significantly reduce liability risks and are more tax efficient for most speech therapists.

A California Professional Speech-Language Pathology Corporation is a separate legal entity, which means the speech therapists 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 speech therapists for their own, individual acts of malpractice). For speech therapists in high liability speech therapy 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 speech therapists, meaning the debts, liabilities, and legal judgments against their speech therapy practice are not generally satisfied from the personal assets of the speech therapists (other than for their own acts of malpractice).

Disadvantages of California Professional Speech-Language Pathology Corporations

The primary disadvantage of a California Professional Speech-Language Pathology Corporation is the relative complexity of formation and operation. However, speech therapists 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 Speech-Language Pathology Corporation, leaving these speech therapists with essentially the same tasks they would undertake to establish and maintain a California General Partnership.

When is a California Professional Speech-Language Pathology Corporation the Right Business Structure for Practicing Speech Therapy?

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

For a more detailed understanding of the differences between speech therapist California General Partnerships and California Professional Speech-Language Pathology Corporations, and when a California Professional Speech-Language Pathology Corporation is the best choice of business structure for a professional practice, see “When to Use a California Professional Speech-Language Pathology Corporation” for more information.

Speech Therapists in California May Not Practice Speech Therapy 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 speech therapists from operating their private 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 speech therapists who wish to operate in corporate form to utilize other types of business entities, such as California Professional Speech-Language Pathology Corporations.

For a more detailed understanding of the prohibition on the use of LLCs for speech therapy practices in California, see “Can a Speech Therapist Practice Speech-Language Pathology Using a California LLC?” and “Can I Use a PLLC to Practice Speech-Language Pathology in California?” and for more information.

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