What must your therapy practice do to maintain compliance? In this article, we’ll discuss some common tasks and which entity types must typically complete them.
Keep in mind that depending on where your counseling practice is located, your responsibilities might be different or more extensive than those listed below.
Maintain a Registered Agent
Therapy practices operating as a statutory entity (i.e., their existence is governed by state business laws) must designate and maintain a registered agent. A registered agent is an individual or company a practice’s owners have authorized to accept service of process and other official documents and notices on the practice’s behalf. The registered agent is typically selected when the private practice is legally started, then renewed each year.
Examples of entities that must maintain a registered agent:
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- C Corporation
- S Corporation
- Professional Corporation
Report and Pay Income Taxes
The business entity you operate determines what taxes you must pay and how you pay them. For example, Corporations report and pay taxes at the entity level while pass-through entities’ (like LLCs, S Corporations, and Partnerships) income tax obligations flow through to their owners’ individual tax returns. Besides federal income tax, a therapy practice might also owe state and local income taxes.
Examples of entities (or business owners) subject to income tax:
- Sole Proprietorship
- General Partnership
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- C Corporation
- S Corporation
- Professional Corporation
Note that owners of Sole Proprietorships, Partnerships, and LLCs must also pay Self-Employment Taxes (Social Security and Medicare taxes) because they do not receive pay checks that withhold those taxes.
Register for Payroll Taxes
If your practice hires employees, it must register for payroll and other employment-related taxes with the appropriate federal, state, and local government agencies. An EIN (Employer Identification Number) is required from the IRS for federal payroll tax purposes (among other things). States and local governments issue tax ID numbers as well for employment tax reporting purposes.
Some taxes must be withheld from employees’ wages and salaries while others are paid by the employer.
Employment and payroll taxes a therapy practice might have to withhold or pay:
- FICA Taxes – Half of an employee’s Social Security and Medicare taxes are withheld from their pay and the employer pays the other half. The amount withheld is based on an employee’s Form W-4. Employers must deposit FICA payroll taxes either monthly or semi-weekly depending on the total tax liability.
- FUTA Tax – Employers pay Federal Unemployment Tax quarterly. This tax is not deducted from an employee’s wages.
- State Income Taxes – In states with individual income tax, employers must withhold, report, and remit the tax due. The amount withheld is based on the employee’s W-4.
- SUTA Tax – Some states require employers to pay a State Unemployment Tax (sometimes called State Unemployment Insurance).
Examples of entities subject to employment and payroll taxes:
- Sole Proprietorship
- General Partnership
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- C Corporation
- Professional Corporation
- S Corporation
Renew Business Licenses and Permits
If your practice had to obtain any business licenses and permits (besides your professional licensing requirements) to legally operate in your state or local jurisdiction, it’s likely you may need to renew them annually, biannually, or on some other schedule.
Business license and permit examples:
- General business license
- Zoning permit
- Home-based business license
- Signage license
Examples of entities that may need business licenses:
- Sole Proprietorship
- General Partnership
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- C Corporation
- Professional Corporation
- S Corporation
Renew Your DBA
If you’re using a Doing Business As (fictitious) name for your practice, that too may need to be renewed. DBAs might be issued at the state or county level, so check the requirements with the agency that oversees fictitious name registrations in your area.
Examples of entities that may have to renew DBAs:
- Sole Proprietorship
- General Partnership
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- C Corporation
- Professional Corporation
- S Corporation
Maintain a Board of Directors
If a practice is formed as some type of Corporation, it must maintain a Board of Directors in accordance with the rules in its bylaws or the state’s requirements.
Examples of entities that must keep a board of directors:
- C Corporation
- Professional Corporation
- S Corporation
Hold Annual Meetings and Record Meeting Minutes
Your practice may have to hold annual meetings during which your business owners or board members discuss important issues and make decisions. Depending on your business structure and its governance documents, that might include one or more of the following: member meetings, shareholder meetings, board of directors meetings.
Also, meeting minutes (detailed notes) must be documented, approved, and kept with other entity formation and compliance documents.
Examples of entities that hold annual meetings:
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- C Corporation
- Professional Corporation
- S Corporation
Abide By Your Governance Documents
Statutory entities must maintain their governance documents (e.g., LLC operating agreement, corporate bylaws) at their principal business location). Also, they must follow the provisions outlined in those documents for things such as holding board and shareholder meetings, decision-making authority, resolving disputes among owners, etc.
Examples of entities that must maintain Operating Agreements or Bylaws:
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- Corporation
- Professional Corporation
- S Corporation
File an Annual Report
Many states require business entities to file an annual report (sometimes biannually or on some other schedule instead — e.g., Pennsylvania has decennial reports). An annual report’s purpose is to confirm that an entity’s information on record with the state is accurate and up to date.
Examples of entities required to file annual reports:
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- Corporation
- Professional Corporation
- S Corporation
File Articles of Amendment With the State
States want to know as soon as possible about any significant changes a registered business entity makes. The paperwork to report those changes is usually called Articles of Amendment.
Types of changes reported on Articles of Amendment:
- Business name
- Principal business address
- Business purpose
- Going from a member-managed to manager-managed LLC (or vice versa)
- Number of authorized shares of a Corporation
- New registered agent
- Number of directors of a Corporation
Examples of entities that must submit Articles of Amendment to record changes:
- Limited Liability Company
- Professional Limited Liability Company
- Limited Liability Partnership
- Corporation
- Professional Corporation
- S Corporation
Why Compliance Matters
Business compliance responsibilities may seem like a grind — just another thing to do amid your many other duties in your counseling and therapy practice. But ignoring them or not completing them on time could put your practice at risk.
Failing to fulfill your compliance obligations could result in your business entity losing its status of good standing. And that could have a variety of negative ramifications for your practice.
Failing to adhere to compliance requirements subjects you to the following outcomes:
- Loss of the personal liability protection afforded to you by operating as an LLC, LLP, or Corporation (Which means your personal assets could be used to settle your business’s debts.)
- Loss of the authority to use your business name
- Tax liens
- Inability to bring a lawsuit against others in the state
- Difficulty obtaining loans or securing financing from banks or investors
- Fines and penalties
- Administrative dissolution of your business entity by the state
You’ve worked way too hard to jeopardize your practice, so make sure you’re well-informed about what compliance requirements you must fulfill. An attorney, accountant, and tax advisor are all excellent resources for getting expert guidance. And remember, my team at CorpNet is ready to help you prepare and submit your critical filings no matter where your practice is located in the United States.
