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Legal Controls for a Group Medical Practice in California (Part I)

The California Hospital Association defines a group practice as a “medical practice comprised of two or more physicians organized to provide patient care services.” All group medical practices need a strong, well-developed legal structure plan. Understanding the role/responsibilities of the different players in the business is essential. In part one of this series, our Bay Area medical practice law attorney discusses legal controls for group medical practices in terms of shareholders, partners, the board of directors, and managing partners. 

Shareholders

In California, a medical practice will generally be formed as a Professional Corporation (PC) under the state’s Moscone-Knox Professional Corporation Act. As a rule, a person must be licensed in the practice of medicine to be eligible to be a shareholder for a group medical practice.

Shareholders in a medical practice are typically the owners of the company. They have invested capital into the practice and, as a result, hold a vested interest in its success. Shareholders often have the power to vote on major decisions affecting the practice.

The rights and responsibilities of a shareholder in a group medical practice will depend, in part, on the structure of the business, including their stake in the company. A majority shareholder will have far more influence than a shareholder who owns a small stake.

The Board of Directors

The Board of Directors is responsible for the strategic direction and oversight of the medical practice. Members are often elected by the shareholders—and, in many cases—are shareholders themselves. Key responsibilities of the Board of Directors typically include establishing governance policies, ensuring the practice adheres to legal standards, financial oversight for the business, and strategy planning.

Managing Partner

The managing partner of a group medical practice is a person in a key leadership role. Most often, the managing partner is a senior physician who owns a significant stake in the business. The role of managing partner typically blends clinical medical expertise with strong business skills. Business leadership is important to ensure effective management of the medical practice’s operations.

  • The managing partner of a medical practice who is often the individual responsible for overseeing day-to-day operations and ensuring that the practice runs smoothly

Not just anyone can serve as the managing partner for a group medical practice In California. The role is highly regulated due to our state’s strict adherence to the Corporate Practice of Medicine (CPOM) doctrine. A medical practice must be owned and managed by licensed physicians—as such, the managing partner must be a licensed doctor.

Contact Our Bay Area Business Law Attorney for Group Medical Practices Attorney

Lynnette Ariathurai is a top-tier, solutions-driven advocate for clients. With extensive experience representing group medical practices, we have professional knowledge that you can rely on for questions about legal controls. Contact us today to set up your confidential consultation. From our Fremont law office, we work with group medical practices through the Bay Area.

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Compensation Structures in Medical Practices

Three are approximately 120,000 licensed physicians who are actively practicing in the state of California. Health care is a highly regulated, ultra-competitive industry. A medical practice needs the right foundation to succeed—and that includes a well-considered compensation structure for physicians. Here, our Bay Area medical practice lawyer provides an overview of the most common compensation structures for medical practices and discusses some issues to consider.

Understanding Compensation Structures for Medical Practices in California

Whether you are building a medical practice from the ground up or adding a new physician to an existing group practice, it is imperative that you have a comprehensive structure in place for compensation. In California, compensation structures for doctors often fit into one of the following three broad categories:

●  Physicians paid based on their own collections: In California, a common compensation structure for medical practice is paying physicians based on their own collections. A pro is that this model incentivizes individual performance—as a physician’s pay is directly tied to the revenue they generate through patient services. However, a con is that it can sometimes create vast disparities among physicians in a group practice.

●  Physicians paid a percentage of group collections: Alternatively, some practices adopt a model where physicians are paid a percentage of the group’s total collections. An advantage is that this approach fosters a more collaborative environment, as all practitioners contribute to and benefit from the group’s overall success. A potential downside is that this type of compensation model might diminish the motivation for high performance.

●  A hybrid model of physician pay: A hybrid model combines individual and group performance metrics to determine compensation. The structure aims to balance personal initiative with team collaboration. Physicians are rewarded for their individual contributions as well as their participation in the collective success of the practice. However, this type of model can be complex to administer.

What to Know About Federal and State Regulations for Physician Profit Sharing

A physician in California can be compensated, fully or partially, based on profits ensured by a group medical practice. That being said, any profit-sharing arrangement used to compensate a licensed doctor must comply with all applicable state and federal regulations, including the Stark Law and the federal anti-kick back statutes. Here is a basic overview of these regulations:

  • Stark Law: Named after Congressman Pete Stark, this is a federal law that prohibits physician self-referral. Specifically, it forbids doctors from referring Medicare or Medicaid patients to entities with which they or their immediate family members have a financial relationship—unless one of the narrow legal exceptions applies. This law aims to prevent conflicts of interest in physician referrals and ensure that medical decisions are based on patient need rather than potential financial benefits for the referring physician. Notably, California has a state-level version of the Stark Law, known as the “California Physician Self-Referral Law.” The law extends the principles of the federal Stark Law to services payable by any source, not just Medicare or Medicaid.
  • Federal Anti-kickback Statutes: The federal anti-kickback statute is a U.S. law that prohibits the exchange of anything of value in an effort to induce or reward the referral of federal healthcare program business—including Medicare and Medicaid. It aims to prevent healthcare providers from making medical decisions based on personal financial gain. Violations of this law are considered felonies and can result in significant penalties, including fines and imprisonment, as well as exclusion from participating in federal healthcare programs.

When a group medical practice in the Bay Area sets up a compensation system for its physicians, it is imperative that they do so in a manner that does not run afoul of the Stark Law, the California physician self-referral law, or federal anti-kickback statutes. A business lawyer with experience working with group medical practices can help your company put the right structure in place.

Allocation of Expenses is an Important Issue and May be Challenging to Calculate

As part of the process for developing a compensation model for a group medical practice in California, it is important to consider the allocation of expenses. Expenses matter to a business as much as revenue generated. Some key factors that must be evaluated include:

●  Overhead: Understanding and allocating overhead costs is crucial in any compensation model. These expenses include rent, utilities, insurance, and equipment. Properly attributing these costs ensures financial fairness and transparency within the practice.

●  Staffing/managers: Staffing costs, including salaries for support staff and managers, represent a significant portion of practice expenses. Equitable allocation of these costs among physicians is essential for a fair compensation model.

●  Practice vs. personal: Finally, distinguishing between practice-related and personal expenses is vital. Personal expenses, such as individual professional development or specific equipment, should be clearly differentiated from general practice expenses.

Contact Our California Business Lawyer for Medical Practices Today

Lynnette Ariathurai is a business law attorney with extensive experience representing medical practices. If you have any questions or concerns about the right compensation structure for your medical practice, we are here to help. Contact us today for a strictly confidential, no obligation consultation. From our office in Fremont, we work with medical practices throughout the Bay Area.

medical practice compensation models, medical practice compensation structures, medical practice ownership

Estate Considerations When a Doctor Dies

We Help Businesses Navigate the Estate Considerations When a Physician Dies in California

When a still-practicing doctor passes away, it will cause serious complications for their business. It is imperative that physicians who own a professional practice have a proper business estate plan in place. Lynnette Ariathurai is an experienced business lawyer for medical practices. Our firm provides solutions-focused legal representation to clients. If you have any questions about estate considerations when a doctor dies, we are here to help. Contact our Fremont law office today for a strictly confidential consultation with a California business lawyer for medical practices.

Why It Matters: Death of Doctor Will Radically Alter the Course of a Business

Of course, estate planning is key for personal reasons. A well-planned estate can help make things easier for family and other loved ones. For doctors who own their own practice in California, there are also major business considerations. The unexpected death of a doctor can send shockwaves through a medical practice. Addressing these challenges requires a proactive and well-developed estate plan for the business.

California Law Requires Medical Professionals to Own/Operate a Medical Practice

In California, the ownership and operation of a medical practice are strictly regulated. Under the state’s Moscone-Knox Professional Corporation Act, only licensed professionals can own and manage a medical corporation. In other words, heirs or estate executors without medical licenses cannot directly continue the operations of the deceased doctor’s practice on their own. It is crucial that there is a plan in place for another doctor—whether a doctor already in the practice or a doctor who owns a separate practice—to assume control of the business.

A Buy-Sell Agreement is a Key Estate Planning Tool for Protection of the Business

One essential estate planning tool for doctors in California is the buy-sell agreement. This legally binding contract details the process for the remaining partners or specified individuals to purchase the deceased’s interest in the business. It can set the valuation method for the practice, ensure there is a source of funding, and put other conditions in place for a potential sale or transfer.

California Law Requires Notification of Patients by a Successor-in-Interest

When a doctor passes away, their patients’ continuity of care is a paramount concern. California law mandates that within 30 days of the doctor’s death, a notification must be sent to patients by the successor-in-interest or the person who takes responsibility for the business. The notification should provide basic guidance for patients for obtaining their medical records, finding alternative care providers, and/or transferring their care to another medical practice.

Estate Considerations are Complicated: How a Business Attorney Can Help

Business planning is complicated—especially when it comes to estate considerations after a doctor has passed away. An experienced business law firm helps clients put proactive business estate plans in place for their medical practices—including buy-sell agreements. We offer business law guidance to medical practices that are already dealing with the unexpected passing of a doctor.

Contact Our California Business Lawyer for Doctors

Lynnette Ariathurai is a top California business lawyer with extensive experience working with medical practices. Have questions about estate considerations after a doctor’s passing? We are here as a resource. Contact us today for your confidential initial consultation. We help medical practices with business-related estate planning throughout the San Francisco Bay Area.

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Buy-Sell Agreements for Medical Practices

We Help Medical Practices with Buy-Sell Agreements in the Bay Area

Do you own and operate a medical practice in California? If you share ownership rights with any other party, it is imperative that you have a well-drafted buy-sell agreement in place. It is important to hire a solutions-driven business lawyer with extensive experience advising medical practices. If you have any questions about buy-sell agreements, we can help. Contact us at our Fremont law office today to set up your confidential, no obligation initial consultation.

What is a Buy-Sell Agreement?

A buy-sell agreement (buyout agreement) can be a contract between co-owners of a business. Most often, the agreement lays out the procedure under which the shares of a departing owner will be distributed or sold if they decide to exit the business due to various reasons—such as death, disability, or retirement.

Why Buy-Sell Agreements Are So Important for Medical Practices in California

While many business owners can benefit from a buy-sell agreement, these types of contracts are especially vital for medical practices. California law mandates that a medical practice must be owned and operated by a licensed medical professional (Moscone-Knox Professional Corporation Act). If a physician partner suddenly departs, another licensed professional must own the business. The practice cannot be directly transferred to most other parties—such as a non-physician spouse. A well-drafted buy-sell agreement helps to ensure a proper transition plan is in place.

A Buy-Sell Agreement Should be Customized to Meet the Needs of a Medical Practice

Every medical practice has its unique dynamics, professional relationships, and future aspirations. As such, a generic, one-size-fits-all buy-sell agreement can lead to complications down the road. It is crucial that the agreement reflects the individual needs and circumstances of the medical practice.  Especially taking into consideration the assets and liabilities of the practice. You will want to make sure that you address any unique issues related to your practice.

Key Elements of a Well Drafted Buy-Sell Agreement

Although every buy-sell agreement should be customized to meet the needs of the medical practice, there are some key issues that should always be considered and addressed. Here are some of the most important elements that you will find in a typical buy-sell agreement:

  • Valuation: Parties should define how the practice will be valued—whether through a predetermined formula or by a specified third-party professional.
  • Trigger: The contract should clearly state the situations (death, disability, retirement, etc.) that will activate the buy-sell provisions.
  • Funding: A properly drafted agreement will explain how the buyout will be funded—whether through insurance, personal funds, or outside financing.

We Help Medical Practices Negotiate and Draft Buy-Sell Agreements

Buy-sell agreements for medical practices are complex contracts. It is imperative that you have the right agreement in place for your business. Our law firm negotiates, drafts, and reviews buy-sell contracts for medical practices in California. We will ensure that any contract that you sign properly protects your legal rights and financial interests.

Contact Our California Business Lawyer for Medical Practices

Lynnette Ariathurai is a business law attorney for medical practices who has extensive experience with buy-sell agreements. Contact us today for your confidential consultation. We help medical practices with the negotiation, drafting, and review of buy-sell agreements throughout the Bay Area.

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Legal Language to Include in Contractor Contracts and Estimates to Reduce Liability to the Licensed Contractor

Contracts are at the foundation of most modern commercial relationships—especially in construction and other trades. It is imperative that contractors have properly drafted agreements—including their pre-agreement estimates. Language matters. Here, our Fremont business contracts lawyer provides an overview of some of the most important legal language to include in contracts and estimates to reduce the risk of liability.

Indemnification Provisions

Legal protection for contractors often starts with a well-drafted indemnification clause. Broadly defined, an indemnification provision is a contract term that holds that one party is responsible for compensating the other party for any harm, loss, or liability. Any contract or estimate presented by a contractor should clarify indemnification. It is a big issue for contractors working with subcontractors or other parties on a project. For contractors, a well-drafted indemnification provision can help to shield you from third-party claims.

Limitation of Liability Clauses

Limitation of liability is another essential piece of legal language for contractors. In effect, this type of contract provision limits the total amount of liability of a contractor. These clauses can be enforceable in California. However, they must be properly drafted. Under California law (Cal. Civ. Code § 1668), contractors cannot limit their liability with regard to certain acts or omissions—such as gross negligence, willful misconduct, or certain statutory violations.

For example, imagine that a contractor violated certain health and safety laws during a project. As a direct result, their customer sustains significant damages. Not only does a new California law (AB 1747) raise the potential statutory penalties that a company could face to up to $30,000, but such a violation could also render a limitation of liability clause unenforceable.

Limitation of Damages Clauses

Similar in intent to the limitation of liability clauses, limitation of damages clauses explicitly define and often cap the damages recoverable by the other party. For instance, this type of contract term may stipulate that consequential damages cannot be sought. Under California law (Cal. Com. Code §2719(3)), a limitation of damages clause cannot be deemed unconscionable. If a limitation of damages is ruled unconscionable by a California court, it could be set aside.

Dispute Resolution Provisions

Dispute resolution provisions can also affect contract terms for companies to limit their liability risks. A key advantage of a well-drafted dispute resolution clause is that it can help a contractor

avoid the costs and unpredictability of litigation. These contract terms stipulate that parties agree to resolve disputes through methods like mediation or arbitration rather than going to court. For example, many contractors opt to include an arbitration provision in a contract. To be enforceable in California, this clause must be properly drafted.

Get Help from Our California Business Law Attorney for Contractors

Lynnette Ariathurai is a business lawyer with extensive experience drafting, reviewing, and negotiating contracts for contractors and construction companies. If you have any questions about reducing your liability risk, please contact us for a confidential initial consultation.

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Legal Needs in Setting Up a Successful Construction Company in California

Are you preparing to set up your own construction company? It is imperative that you have the right structure in place. Here, our Fremont lawyer for starting a business highlights the key things to know about setting up a successful construction company in California.

Know the Licensing Requirement: CSLB Contractor’s License

To start a construction company in California, you must have the proper license. If you already have a California State License Board contractor’s license, you can start a construction company right away, regardless of whether you have any prior history owning your own business. In other words, you can start your own construction company today if you have a CSLB contractor’s license, but you have only ever worked for other employers.

We Help CSLB Contractors With their Application for an Entity License

Companies providing contractor services will need a CSLB license. Navigating the complexities of obtaining an entity license can be daunting for CSLB contractors who are preparing to start their own company. Our team can help. We are committed to simplifying the process and providing comprehensive assistance tailored to the unique needs of each contractor. With in-depth knowledge of the requirements, we ensure your application is complete and accurate. For construction companies in California, bonds are generally required. Of course, obtaining the proper insurance coverage is also incredibly important. For some types of entity licenses, workers’ compensation coverage is required even if the company has no employees.

Other Important Legal Needs for Starting a Construction Company in California

Beyond obtaining the CSLB contractor’s license and the business entity license, there are several other key considerations that you need to address when starting a construction company. Some other notable legal needs for setting up a construction business in California include:

  • City business license (business permit): Most cities in California have their own regulations regarding business operations. Before you can legally run a construction company in a local area, it is essential you secured any required business license/business permit. The permit legitimizes your operations within the city.
  • Legal structure for business (sole proprietorship, LLC or corporation): A construction company needs the proper legal foundation. While some construction companies are established as sole proprietorships or corporations, some entrepreneurs in the construction industry opt for a limited liability company (LLC) structure. Notably, a properly formed and operated corporation or LLC can provide owners with personal liability protection.
  • Compliance with California employment laws: California has stringent employment laws designed to protect workers. As a construction company, it is crucial to understand and adhere to these laws. Notably, construction businesses should pay close attention to the regulations regarding employees and independent contractors.
  • Properly drafted contracts: Contracts form the backbone of most construction projects in California. These contracts define the scope, payment terms, responsibilities, and potential liabilities among other things.  CSLB also requires certain language to be included in contracts for construction services.  To protect your company from future disputes and comply with CSLB, a construction company’s contracts should be drafted and/or reviewed by an attorney.

Contact Our Bay Area Business Lawyer for Construction Companies Today

Lynnette Ariathurai is an experienced, solutions-driven business lawyer. We help clients set up successful construction companies. Contact us right away for a fully confidential appointment. We provide business law services to construction companies throughout the Bay Area.

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Minimizing Debt Transfer When You Purchase a Business

Are you considering buying a business in California’s Bay Area? If so, it is imperative that you ensure the transaction is properly structured. A well-structured purchase agreement is especially important if the target company has a considerable amount of debt. With the right approach, you may be able to minimize the debt that you take on as part of the transfer. Here, our California attorney for buying a business highlights some of the key things that you should know about minimizing the debt transfer when you purchase a company. 

Why It Matters: Buying a Business Could Mean Taking on Its Outstanding Debt

Buying a business in California is about more than just about acquiring its assets. You also inherit outstanding liabilities, including unpaid debts. The amount of debt held by the business that you are looking to acquire can significantly impact the investment value. There are strategies that entrepreneurs can use to help minimize debt transfer.

Four Key Strategic Considerations to Minimize Debt Transfer When You Buy a Business

When buying a business, a proactive approach can make all the difference. It is crucial to protect your rights and interests. Here are four key strategic points to keep in mind when working to minimize the amount of debt that you take on when you acquire another business:

  1. Do your due diligence (know what is owed): Before finalizing a business purchase, be sure to conduct a thorough review of its financial records. It is vital to understand the full extent of its assets and liabilities. You need to accurately evaluate the business’ true value and potential risks.
  2. Negotiate with the seller to focus on reducing debts: Once you fully inform yourself about the actual assets and the outstanding debts, use this knowledge as a bargaining tool. It may be possible to negotiate the price downwards or require the seller to clear the liabilities before you close.
  3. Consider an asset purchase: Instead of buying the business entity itself, contemplate purchasing its individual assets. An asset purchase approach is one that allows you to handpick the assets you want and avoid taking on a majority of unwanted liabilities.
  4. Beware of successor liability risks: Even with an asset purchase, the purchaser of a business may still be held responsible for the previous owner’s liabilities under California’s ‘successor liability’ laws (Cal. Code Regs. Tit. 18, § 1334). Always consult with experienced legal counsel.

An Attorney Can Help You Structure a Business Purchase to Best Minimize Debt

The purchase of a business is an incredibly complex transaction—particularly so when that company still has outstanding liabilities. You do not have to figure out everything on your own. Engaging an experienced Bay Area business acquisition attorney is vital. Not only can your lawyer bring legal expertise to the table, but they are also able to review the proposed deal, negotiate on your behalf, help you evaluate all your financial risks, and take action to protect your rights and interests.

Contact Our California Business Acquisition Attorney Today

Lynnette Ariathurai has deep experience handling complex business transactions. If you have any questions about minimizing debt transfer when buying a business, we can help. Contact us now for a confidential, no obligation initial appointment. With an office in Fremont, our firm serves clients across the area, including in Newark, Hayward, East Bay, Milpitas, Union City, San Leandro, Santa Clara, and San Jose.

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Apply for your Home Health Care License before Purchasing a Home Health Care Company

Home health care is a rapidly expanding industry in California. The Employment Development Department (EDD) notes that the home health care industry already generates more than $10 billion in annual revenue in our state. You may be thinking about purchasing a home health care company—either to add to your existing business or to get into the industry.

When buying or acquiring a home health care agency in California, it is imperative you understand the licensing requirements. You should apply for your license before you purchase the company. Our Bay Area home health care agency attorney explains what you need to know about home health organization licenses and purchasing these businesses in California. 

Understanding the Licensing Requirement: Home Health Care Agencies in California

As of January of 2016, all home health care agencies that operate in California must comply with the Home Care Services Consumer Protection Act. Among other things, the law requires that all home health care organizations in the state must be properly licensed. If you do not have the appropriate home health care license, it is unlawful for you to operate the business. Licensing is a major consideration when you buy/acquire a home health care business.

You Cannot “Buy” a Home Health Care License in California

In California, obtaining a license to operate a home health care service is not as simple as purchasing an existing business. Buying a home health care business in California does not mean that you automatically get access to its license to operate.

All individuals interested in entering this industry must be prepared to apply for their own license or be prepared to complete a required waiting period. Licensing is an issue that you should address before you finalize the purchase of a home health care business.

You do not want to end up in a situation whereby you effectively buy the debt of a home health care business and a few relatively low value assets, without getting access to the license that you need to operate the company.

Protect Yourself: Consult with a Business Lawyer who has Home Health Care Experience

Buying a business is complicated—especially so in California’s highly regulated home health care industry. It is imperative that any deal that you enter is structured properly—with licensing sorted out before the transaction is finalized. Do not go it alone. When venturing into the home health care industry in California, it is crucial to engage a knowledgeable business lawyer with industry-specific experience. Your attorney will understand the complexities of licensure, issues of regulatory compliance, and the ins and outs of the business transfer processes.

Contact Our Bay Area Home Health Care Business Law Attorney Today

Lynnette Ariathurai is a commercial lawyer with the unique skills and experience to handle the issues facing home health care agencies. If you have any questions about health care licenses and the purchase of a home health care company, please contact us today for a fully private consultation. From our Fremont office, our firm serves home health care agencies across the Bay Area.

California home health care licensing, home health care agency, home health care licensing

Securing your Medi-Cal License before you Purchase a Medical Practice

Are you preparing to purchase or acquire a medical practice in California? It can be a fruitful business decision—but it is crucial that all aspects of the transaction are handled properly. Health care is a highly regulated industry. You need to obtain a Medi-Cal license—and there are certain steps that you should take to help ensure your application is approved in a timely manner. Our Bay Area business law attorney explains why it is so important to secure your Medi-Cal license before you purchase a medical practice in California.

Background: The Importance of a Medi-Cal License

Medi-Cal is California’s Medicaid program. The public health insurance program provides coverage for health care services for low-income individuals and other qualifying people with significant financial or medical needs. As explained by the California Department of Health Care Services (DHCS), a medical practice must apply to enroll in the Medi-Cal program to be an eligible provider. It is a big market and medical providers that are not enrolled cannot be reimbursed by Medi-Cal.

A Premature Medi-Cal Application Will Result in Denial

The Medi-Cal application enrollment process you must undertake when buying a medical practice in California is complicated. Timing is a key issue. Submitting your application too early—prior to fully establishing the business—can result in denial. Medi-Cal stipulates that before applying, practices must meet several requirements, including securing a lease and fulfilling other preconditions, defined as “establishing the business” under CCR Title 22, Section 51000.60. The proper sequence of steps is crucial when applying for a Medi-Cal license. An experienced attorney can help you navigate this procedure and with other matters related to the purchase or acquisition of a medical practice.

You May Qualify as a Transferee Applicant if You Buy a Medi-Cal Enrolled Medical Practice

If you are planning to purchase or acquire Medi-Cal enrolled medical practice, you could potentially qualify as a “transferee applicant”. It is a classification that is applicable to individuals or entities acquiring a business already enrolled with Medi-Cal. Notably, the transferee application is a distinct process that can help streamline the transition and speed up Medi-Cal enrollment. However, not all purchasers will qualify. It depends on your specific situation. There are several different requirements that must be met. Among other things, you will need a valid Successor Liability with Joint and Several Liability Agreement. A Bay Area business lawyer with experience handling medical practice transitions in California can help you understand all your options and ensure that your purchase is structured in the manner designed to best protect your interests.

Contact Our California Business Lawyer for a Confidential Consultation

Lynnette Ariathurai is a business lawyer with experience helping clients purchase medical practices. If you have any questions about Medi-Cal licenses and the purchase or acquisition of a medical practice, we can help. Call us now or contact us online to set up a confidential consultation. With an office in Fremont, our firm serves communities throughout the San Francisco Bay Area.

California Medicaid, Medi-Cal licensing

Importance of Having an Attorney Advise During the Formation of an LLC

importance of llc formation attorney

Making the decision to start up a new business is exciting. You can build something of real value to support yourself, your family, and your community. A limited liability company (LLC) is a flexible, cost effective legal structure for many different types of businesses. As forming any type of new business can be complicated, it is best to seek guidance from an experienced attorney who can help you put the right foundation in place. Here, our Fremont business formation lawyer highlights five considerations that should be addressed during the formation of a limited liability company (LLC).

1.   Whether an LLC is the proper form (eligibility, needs, etc.)

A limited liability company is a popular way to set up a business. As explained by the California Secretary of State, an LLC “offers liability protection similar to that of a corporation, but is taxed differently.” It combines some of the core advantages of a corporation and a partnership. That being said, an LLC is not the right form for every type of business. Some companies are better served by a different legal structure. Further, certain types of businesses in California—such as a medical, dental, or nursing practice—cannot be set up as an LLC. An attorney will help you determine whether an LLC is the right form.

2.   Selection of State for your limited liability company

When forming an LLC, you also need to decide where you are going to set it up. You may or may not want to make California the home state of your LLC. In some circumstances, setting up an LLC in a different jurisdiction—such as Delaware or Nevada—offers real advantages. In other cases, setting up an LLC outside of California adds complexity with no tangible benefit. A business formation lawyer can help you choose the right state.

3.   The applicability of liability protection

One of the central advantages of an LLC is that it offers liability protection. Simply described, an LLC helps to ensure that the members will not be held personally liable for the debts incurred by the business. Of course, the liability protection associated with an LLC is situation-dependent. It may not, by itself, offer adequate liability protection. Additional precautions may be required.

4.   Drafting and negotiating an operating agreement

Every LLC should have a written operating agreement. While LLCs doing business in California are regulated by California law, the reality is that many of your personal rights and responsibilities related to the business will be derived from your operating agreement. An operating agreement for an LLC should always be negotiated, drafted, and reviewed by an experienced business formation attorney.

5.   Compliance with ongoing requirements for LLCs

Finally, it is important to remember that LLCs must comply with certain ongoing legal requirements in California. In setting up an LLC, an experienced California business attorney can help you understand the ongoing and future requirements so that you are in the best position to comply. 

Get Help from Our California Business Formation Attorney Today

Lynnette Ariathurai is an experienced business formation attorney. If you have any specific questions about setting up a limited liability company (LLC), we are here to help. Contact us today to arrange a confidential consultation. We provide business law services throughout the Bay Area.

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