The acronym “MD PA” stands for Medical Doctor Professional Association, a specific legal entity designed for licensed medical professionals to incorporate their practice. This structure allows physicians to operate their medical practice as a formal business organization separate from their individual identity. Establishing an MD PA provides doctors with a defined corporate framework for their professional activities.
Defining the Professional Association
A Professional Association (PA) is a corporate entity established under state law for practitioners in fields requiring a professional license, such as medicine, law, or accounting. This structure is often mandated by state regulations to maintain professional oversight, even when the practice is incorporated. The PA acts as a distinct legal person, separate from the individual doctors who own and operate it.
Forming a PA allows licensed professionals to gain the organizational and financial benefits of a corporation while adhering to strict professional licensing requirements. In many states, standard corporations or general Limited Liability Companies (LLCs) are prohibited from providing medical services. The PA designation ensures the business entity remains under the jurisdiction of the state’s medical licensing board.
Key Business Advantages of an MD PA
Forming an MD PA provides organizational and financial benefits beyond the individual practitioner. The corporate structure enables the practice to establish formal employee benefit plans, which are more sophisticated than those available to sole proprietorships or partnerships. This includes structuring robust retirement savings programs, such as defined benefit plans or generous 401(k) plans.
The PA structure grants the practice perpetual existence, meaning the business entity continues even if a physician-owner leaves or retires. This separation provides a clear framework for the continuity of operations and the easier transfer of ownership shares. The formal corporate nature also facilitates organizational management through a defined board of directors and corporate officers.
How Professional Liability is Handled
The Professional Association structure offers a specific, yet limited, shield of liability protection for its physician-owners. The PA protects a physician’s personal assets from the practice’s general business debts, such as equipment loans, office lease obligations, or wage disputes. Liability in these scenarios is limited to the assets of the association itself, separating the doctor’s personal finances from the business’s financial obligations.
The PA structure does not shield an individual physician from personal liability arising from their own professional negligence or malpractice. A physician remains personally responsible for any claims resulting from direct patient care errors. Malpractice insurance is a separate and mandatory requirement, as the insurance policy, not the corporate structure, covers the financial risk of professional liability claims.
The PA offers protection against vicarious liability for the actions of other owners within the practice. If a claim is brought against the PA due to the negligence of a different physician-owner, the personal assets of the non-involved owners are protected. This distinction separates liability for general business matters from malpractice liability, which is linked to the individual rendering the medical service.
Ownership and Operational Requirements
Professional Associations are subject to stringent regulatory requirements that distinguish them from standard corporate entities. State laws mandate that the ownership and management of a PA must be restricted to licensed professionals in that field. This means that all or a majority of the shareholders, directors, and corporate officers must be licensed medical doctors.
To ensure ongoing compliance, PAs must adhere to formal corporate governance procedures, including adopting bylaws and holding regular board and shareholder meetings with recorded minutes. The practice must also maintain the licenses of all its physician-owners and comply with state-specific naming conventions. This usually involves appending the abbreviation “PA” or “P.A.” to the business name, signifying that the entity is a professional association.
Tax Structure Options for a Professional Association
A PA is a legal entity that can choose from different tax elections available under federal law, not a tax designation itself. A Professional Association is defaulted by the IRS to be taxed as a C-Corporation unless an election is made otherwise. A C-Corporation pays income tax at the corporate level, and shareholders pay a second tax on distributed dividends, resulting in double taxation.
The PA can elect S-Corporation status by filing Form 2553 with the IRS. S-Corporation status treats the PA as a pass-through entity, where business income and losses are reported directly on the owners’ personal tax returns, avoiding corporate income tax. Physicians operating as an S-corp may also achieve payroll tax savings by designating a portion of their income as a salary and the remainder as a distribution.
C-Corporation status might be chosen if the corporation intends to retain significant earnings for future expansion or if the lower corporate tax rate is advantageous. Conversely, the S-Corporation structure is often favored by smaller practices that distribute most earnings to physician-owners, as it avoids double taxation. The decision between the two is a complex calculation based on the practice’s profitability and growth strategy.
PA Versus Other Common Business Structures
The MD PA structure is one of several forms a medical practice can take, each with different legal and operational implications. A sole proprietorship or general partnership offers little protection for owners’ personal assets from business liabilities. In contrast, the PA, like a Professional Limited Liability Company (PLLC), provides a necessary layer of liability protection while operating in a professional service industry.
Many states require medical practices to form a professional entity, such as a PA or PLLC, rather than a general LLC. This mandate exists because state licensing boards need to maintain direct oversight of the individuals providing medical services.
A Professional Association is structured more like a traditional corporation, requiring formal governance with directors and officers, making it less flexible than a PLLC. The PLLC typically offers more freedom in management structure and tax treatment. Both the PA and PLLC allow licensed professionals to incorporate while maintaining accountability to state licensing bodies. The final choice often hinges on the physician’s preference for corporate formality versus operational flexibility.