Professional case managers have a critical role in the future of health care. As independent practitioners, there may come a time when we seek to form our own businesses or partner with colleagues to be responsible to and for ourselves. There are many good reasons to "being your own boss"; however, business ownership comes with risks and benefits. The key, as with most everything, is planning and good decision-making.
Why bother forming a business entity? The primary purpose for creating a business entity is to provide protection for you, your family, and your personal assets. If you are a sole proprietor and if you are sued, the potential recovery for the person who believes you have harmed them could include your home, personal bank accounts, and investments. Business entities like corporations and Limited Liability Companies (LLCs) are artificial "persons." Such "persons" conduct business, pay taxes, and do just about everything that an individual can do. The difference is that the entity provides a shield for the individuals who are their shareholders or members.
Why do I need a business plan? "A business plan is an essential roadmap for business success. This living document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues" (SBA, 2015, p. 1). We have vast experience in planning and decision making for our clients, as we help them through transitions of care. The same skills utilized in day-to-day case management practice can transfer into acquiring business savvy. By starting with a written business plan, you are framing what success will look like for you and your business.
What business structure is best for me? Are you going to "go it alone" or are you going to form a business with one or more colleagues? As you review the various business models available, you will want to evaluate the risks and benefits associated with each. There are both legal and tax requirements for each business model.
Business Models
Each state defines and regulates business models through its Office of the Secretary of State, Department of Corporations, Department of the Treasury, or similar. One of the initial steps in forming a business is to learn how your state regulates, licenses (not in all states), taxes, and requires reporting from the business model you are considering. There are local offices of the small business administration in all 50 states with a wide range of information, resources, and loan opportunities.
Sole proprietorship is the most basic type of business. You are the only owner of the company and are responsible for its assets and liabilities.
Partnership is a business where two or more people share in the ownership. The partners may have equal shares or not; this structure is delineated in a Partnership Agreement. All rights and liabilities are shared by the partners.
Corporation "(sometimes referred to as a C corporation) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements. Due to these issues, corporations are generally suggested for established, larger companies with multiple employees" (SBA, 2015, p. 4).
S Corporation "(sometimes referred to as an S Corp) is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. To be considered an S Corp, you must first charter a business as a corporation in the state where it is headquartered. According to the IRS, S corporations are "considered by law to be a unique entity, separate and apart from those who own it." This limits the financial liability for which you (the owner or "shareholder") are responsible. Nevertheless, liability protection is limited-S corps do not necessarily shield you from all litigation such as an employee's tort actions as a result of a workplace incident" (SBA, 2015, p. 5).
Limited Liability Companies (LLCs) have become very popular small companies since their statutory creation. Please note that in some states an LLC can be formed by only one person and in other states (i.e., New Jersey) the law permits an LLC to have one owner. LLCs do not have officer, shareholders, or partners. The owners are referred to as members and the "head" of the company is the managing member. "A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership" (SBA, 2015, p. 2).
Selecting your business model is only the first step. All states require that you select a name for your company and file it with the Secretary of State to assure that the name is not already being used. When you clear the name, you have completed the first step in registering your business. You need to provide the name of the person who will be the Registered Agent, the location and mailing address (if different) for the business, and other contact information.
A Written Business Agreement: Whether you form a corporation, partnership, or an LLC, a written agreement establishes the rights, responsibilities, and liabilities of your "business partners." State statutes may require a written agreement or, in the absence of such writing, may regulate the results of certain actions. For example, in my home state of New Jersey, a new law went into effect on March 18, 2013: the "Revised Uniform Limited Liability Company Act," or RULLCA. Some of the changes include no time limitation for the existence of an LLC, permissible forms of operating agreements, and most importantly if the operating agreement does not address a matter contained in the statute, the statute will control the issue (NJAOC, 2012).
A registered agent is "the person designated by a business entity, such as a corporation, to receive legal correspondence on behalf of the business entity within the state which the agent's address is located" (Cornell, 2015). The registered agent can be the owner of the business or a designated third party, such as an attorney or accountant. That person receives all official mail from the state and accepts service for any lawsuits that might be filed against the business entity.
Segregation of funds is key: One common mistake that small business owners make is after going through the expense and effort of forming a business entity; they use their personal checking accounts rather than establishing a business account. The protections that are associated with forming a separate business can be lost by comingling personal funds and assets with business assets. One of the main reasons for forming a business entity is to shield your personal funds and assets. Failure to obtain a Federal Tax Identification Number (TIN) and using your personal social security number to identify your business defeat the purpose of business formation and may place your personal assets at risk. It is not enough to form the business entity; you must also "act like a business."
What about insurance? As a professional case manager, you most likely already have or should have professional liability (malpractice) insurance based upon your primary profession (i.e., RN, LCSW, MD). If you have employees, contact your State Department of Labor to determine what, if any, workers' compensation insurance requirements your state has. Your business should have its own insurance. If your business is located in an office building or other space, you will want to contact an insurance agent/advisor to determine what premises liability or other insurance best protects you and your company. Your professional liability insurance will not extend to premises liability.
What about HIPAA requirements? You will need to conduct a simple analysis to determine whether you are an Entity or Business Associate. Official information is updated on a regular basis at: http://www.hhs.gov/ocr/privacy, which is a good starting point for all things HIPAA, compliance, and enforcement.
The following articles may be helpful to you as you embark on the journey of case management business formation:
Muller L. S. (2014, July/August). HIPAA compliance practice tips. Professional Case Management, 19(4), 191-193.
Muller L. S. (2013, July/August). Integrity and accountability The Omnibus Final Rule: Part I. Professional Case Management, 18(4), 204-207.
Muller L. S. (2013, September/October). Integrity and accountability The Omnibus Final Rule: Part II. Professional Case Management, 18(5), 260-263.
Muller L. S., Fink-Samnick E. (2013, January/February). Are we there yet? Professional licensure strives to sync with practice reality. Professional Case Management, 18(1), 36-40.
Muller L. S. (2011, November/December). Contracts in case management: An updated view. Professional Case Management, 16(6), 311-315.
Do Your Homework
Professional case managers are very accomplished women and men. Business ownership is an opportunity that is a perfect fit for some and a fantasy for others. If you use your organizational skills, your professional accountability, and your years of education and experience, along with consultation with experts, you may be ready to start the next chapter of the case management life. Good luck.
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