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Should I Set Up an LLC for My Private Practice Counseling or Use an S-Corp?

The choice of whether to set up an LLC for your private practice counseling business or to use an S-Corp ought not to be an issue because naturally, the most ideal business structure for a private practice counseling business is an LLC.

This is because S-Corp or S corporations are corporations that pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

In as much as you can comfortably use an LLC for your private practice business, it is important to note that the success of your private practice counseling business depends on selecting the appropriate LLC structure for the business.

There are various types of LLC structures in the United States such as Single-member LLCs, Multi-member LLCs, Professional LLCs, Series LLCs, and L3Cs. Interestingly, each of these LLC structures offers unique benefits and considerations, hence you should choose the one that best suits your business needs and goals.

Comparison of Using LLC Vs S-Corp for Private Practice Counseling


  • LLC: By default, LLCs are pass-through entities, meaning profits and losses pass through to the owners’ tax returns. Owners pay self-employment taxes on all income.
  • S-Corp: S-Corps also offer pass-through taxation, but owners can potentially reduce self-employment taxes by paying themselves a reasonable salary and taking additional income as distributions, which are not subject to self-employment taxes.

Ownership and Management:

  • LLC: LLCs offer flexibility in ownership structure and management. They can be owned and managed by one or more members (owners) or designated managers.
  • S-Corp: S-Corps have more rigid ownership and management requirements. They must have a limited number of shareholders, who are subject to certain eligibility criteria. Additionally, S-Corps must appoint officers (president, secretary, treasurer) to manage day-to-day operations.

Formalities and Compliance:

  • LLC: LLCs have fewer formalities and compliance requirements compared to S-Corps. They typically have simpler record-keeping and reporting obligations.
  • S-Corp: S-Corps have more formalities and compliance requirements, including holding regular meetings, maintaining corporate minutes, and filing annual reports with the state.

Liability Protection:

  • LLC: Like corporations, LLCs offer limited liability protection, shielding owners’ assets from business liabilities.
  • S-Corp: S-Corps also provide limited liability protection to shareholders, protecting personal assets from business debts and lawsuits.

Tax Deductions and Benefits:

  • LLC: LLCs may have fewer tax deductions and benefits compared to S-Corps, as S-Corp owners may be able to take advantage of tax-saving strategies such as deducting qualified business expenses and splitting income between salary and distributions.
  • S-Corp: S-Corps offer potential tax-saving opportunities, such as deducting certain business expenses, including health insurance premiums and retirement contributions, and potentially reducing self-employment taxes through salary and distribution structure.

Steps to File an LLC for a Private Practice Counseling Business?

Step 1: Choose a Name for the Private Practice Business and Register It

Even though state laws vary as it relates to naming a new business, your LLC name generally:

  • Must be distinguishable from other business entity names already registered with the state. You can search for business name availability on the state agency’s business filings website.
  • Must indicate that the business is a limited liability company by including the words “limited liability company,” “L.L.C.,” or “LLC” at the end of the business name. Other words or abbreviations may also be acceptable, depending on your state.

Please note that the name you settle for must meet all the requirements listed below, plus you must make sure the name you settle for is easy to pronounce, and it is one that your target market can easily relate to.

When selecting an LLC name, consider the following:

  • The availability of a trademark and the risk of infringing upon another company’s trademark
  • Avoid names that are difficult to spell or pronounce
  • Avoid names that have negative connotations

Please note that most states in the United States allow you to reserve a name temporarily if you’ve chosen an available name but aren’t ready to file LLC formation paperwork yet. Submit your state’s name reservation form and the required filing fee to reserve a name. Rules, fees, and forms vary by state.

Step 2: Choose a Registered Agent

A registered agent (also known as a resident agent or statutory agent) has one job: to receive legal documents, such as lawsuits and subpoenas, on behalf of your LLC and then deliver them promptly to the appropriate person at your business.

Every state has its requirements for who can serve as a registered agent, but typically, the registered agent services must be either (1) a state resident over the age of 18 who has a physical address in the state (known as the “registered office”), or (2) a company authorized to provide registered agent services in the state.

In most states, you can act as your registered agent, name an employee or other individual as an agent, or hire a registered agent service.

Your LLC might need to hire a registered agent if:

  • Your business doesn’t have a physical presence in the state of formation
  • No one is available at your business location during regular hours
  • You run a home-based business and don’t want your address appearing in public records

Step 3: Prepare an LLC Operating Agreement

An operating agreement is a vital document that outlines your LLC’s operational and financial procedures, including details on the business structure, ownership interests, and profit division.

Even if not legally required, developing a detailed operating agreement is vital as it clarifies the management, financial rights, and responsibilities of LLC members.

Creating an LLC operating agreement independently may be suitable for single-member LLCs, but engaging a qualified attorney for LLCs with multiple owners is advisable.

The operating agreement should outline the powers and responsibilities of the LLC’s members and managers, the distribution of profits and losses, and the procedures for buyouts or dissolutions.

Having a comprehensive operating agreement offers several benefits:

  • It helps to avoid potential conflicts among members
  • It provides an additional layer of personal liability protection
  • It ensures a smoother operation of your LLC
  • It safeguards your personal assets.

Step 4: File LLC Articles of Organization

At this stage, you might consider using online LLC filing services to form an LLC, streamline the formation process, and ensure all documents are accurately submitted.

The necessary formation documents for an LLC may be referred to as “articles of organization,” “articles of incorporation,” “certificate of information,” or “statement of information.”

You officially create an LLC by filing articles of organization with your state. The articles typically include the following information:

  • The name of the LLC
  • The address of the LLC’s main place of business
  • The duration and purpose of the LLC
  • Whether the LLC is managed by its members or a manager
  • The name of the registered agent and address of the agent’s registered office
  • The signature of one or more of the LLC’s organizers
  • Almost all states allow you to file articles of organization online. Filing fees vary by state, usually between $50 and $150, with a handful of states charging more than $200.

To complete the process, follow these steps:

  1. Research the appropriate state agency where you need to file the paperwork. This is often the same website where you researched your business name.
  2. Complete the necessary paperwork according to the instructions provided by the state agency.
  3. Pay the filing fee, which can be done online or by mail.

Please note that some states process LLC articles of organization instantly, while others take a few days to weeks. In some states, you can pay an extra fee to expedite processing.

After your LLC paperwork is approved, you will receive a certificate of formation from the state confirming that your limited liability company officially exists.

Step 5: Get an EIN & bank account

Once your limited liability company is official, you can apply for an employer identification number from the Internal Revenue Service.

The EIN is a nine-digit number that identifies your business for federal tax purposes—similar to an individual’s Social Security number.

You must have an employer identification number if your LLC has employees or more than one member. Single-member LLCs with no employees can use the member’s Social Security number, but your financial institution may ask for an EIN to open a business bank account. An EIN also helps protect your personal SSN.

You can get an employer identification number at no cost on the IRS website. Once you have an EIN, you can set up a business bank account and deposit company funds.

Step 6: Obtain Business Licenses and Permits

Depending on the business you have and where it’s located, you may need one or more licenses or permits to operate legally. Here’s an overview of some of the more common ones.

  • Seller’s permit. If you sell taxable goods or services in a state that charges sales tax, you will probably need a sales tax license or seller’s permit from the state. The permit allows you to collect sales tax and remit it to the state.
  • General business licenses. A few states require all registered businesses to have a general business or operating license.
  • Industry-specific licenses. Federal, state, and local governments all have a hand in regulating businesses, issuing everything from liquor licenses to occupancy permits and commercial fishing licenses.
  • Registration in other states. If your business has a location other than where you formed your LLC, you will need to register as a foreign LLC in that state.
  • DBAs. In general, you need to file a DBA if you are doing business under a name other than your legal name.

Industry trade associations and local and state government offices are good resources for determining the types of licenses and permits your business may need.

Step 7: Get Tax Advice and File Any Required Forms

Meeting with a tax adviser at the beginning of your business life can save you money in the long run. A CPA can advise you on the best tax classification, what business expenses are deductible, the kinds of financial records you need to keep, and the tax forms you will need to file.

An LLC can also elect to be taxed as an S Corp or a C Corp by filing a federal tax election form with the IRS.

Note that you are self-employed if your LLC is classified as a sole proprietorship or partnership. You will report business income and expenses on your personal tax return (partnerships also file a partnership return).

You will pay income and self-employment (Medicare and Social Security) taxes on your share of business profits. Estimated taxes should be paid quarterly to avoid fees and penalties.

Lastly, even if you eventually settled for an S Corp for your private practice business, your profits will also pass through to the owners’ personal tax returns.

But S Corp owners can be company employees who pay Social Security and Medicare taxes only on their salaries, not on the company’s entire profit.

Salaries must, however, be reasonable for your work and the company’s income. To be taxed as an S Corp, an LLC must be eligible and meet election form filing deadlines.