Business Entities for a Midwifery Practice
Considering starting a midwifery practice and unsure which business entity is best for you. I want to stress from beginning, I am not a lawyer or accountant. PLEASE, PLEASE, PLEASE seek legal counsel before making final decisions with business entity decision. Each state is different on entity rules and requirements. Get familiar with your local jurisdictions. Let’s start at the basics. What are the types of business entities to choose from?
*Sole Proprietor: easiest to start, doesn’t need anything paperwork completed with state or federal government, would be included on personal tax forms, no legal protection from business on personal assets, no tax saving benefits for business ownership
* Limited Liability Company: more commonly used for midwifery practices, if business rules on state level are followed appropriately (not co-mingling personal and business funds, yearly meeting minutes, articles of corporations), then liability protection from business on personal assets, taxation savings for personal income not as well as S-corporation (need to pay self employment tax) but does have business tax benefits
*S-Corporation: liability protection from business to personal assets, can sell stocks to help get business started (no more than 100), more legal paperwork to run and get started than LLC, and more income tax benefits than LLC
*C-corporation: limited liability benefits, unlimited sale of stocks to help get business going, tax deductible benefits, double taxation (shareholder dividends and company income), more government oversight and regulations to follow, no deduction of corporate losses
*Non-profit Organization: need meet certain requirements are eligible for special tax treatment by the IRS under Section 501(c)(3) of the IRS, donors enjoy tax benefits, must apply for 510(c)(3) status before taking advantage of its benefits, exempt from federal income taxes, able to apply for grants on state and federal level, must be established for literary, educational, religious, charitable or scientific purposes, Board of Directors needs to be present
Each entity has its pros and cons. Every state has their own rules of what a midwife can apply for. For example in Michigan, Certified Nurse Midwives can’t own their own business based on Licensing Department referencing nursing scope of practice state rules. Any other midwife in the state of Michigan can own a business, but a CNM. A PLLC (Professional Limited Liability Company) would be what a CNM needed to apply for, but law description of this business entity doesn’t include a Nurse Midwife. I have seen many CNMs still run their own businesses in Michigan, but need to find legal loop holes to make it happen. Do your research and don’t give up if a hurdle comes up, that is part of business ownership!
I am always nervous when a midwife states she wants to do Sole Proprietorship. There is NO liability protection from business. Obstetrics is a high litigation profession in United States. No matter how amazing and safe your care is, a lawsuit will eventually happen from unhappy consumer or poor outcome. There is also no business tax benefits of this entity. Tax benefits are exactly the same as working for someone else. You want to write off all your everyday expenses that can be used for business like cell phone, internet, computer, home office, supplies, mileage, and more.
Non-profit is a great option if you want a community ran business like a birth center or serving a minority population. Having tax exemptions and start up funds available from grants is very helpful. It really depends on population you want to serve and type of midwifery business you are trying to start. There is far less liability consulting than being at the women’s side helping her birth.