S-Corp vs. PC vs. PLLC for Doctors: What’s the Best Entity Structure for Physicians?

Starting or restructuring a medical practice involves a host of decisions, but few are as foundational as choosing the right business entity. For physicians, this decision isn’t just about taxes or paperwork. It affects liability, how income is taxed, how partners are added, how profits are distributed, and how much time is spent on compliance.

To complicate things further, doctors can’t always choose from the full menu of entity types available to other professionals. Most states impose strict rules on entity structures for physicians and other licensed professionals. That means you’ll need to work within a narrow set of options, typically a Professional Corporation (PC) or a Professional Limited Liability Company (PLLC), and decide whether a S-Corporation (S-Corp) election makes sense on top of that.

Understanding how these structures work and what makes each one unique is central in enabling physicians to make the right choice based on their goals, income level, and state-specific regulations.

What Physicians Need to Know About State Rules and Structure Eligibility

Physicians don’t have the same flexibility as tech founders or retail entrepreneurs when it comes to choosing a legal structure. Nearly every state has laws, often called Corporate Practice of Medicine (CPOM) rules,that prohibit unlicensed individuals or entities from owning or controlling a medical practice. As a result, physicians are usually limited to professional entities: PCs, PLLCs, or in rare cases, LLPs.

Which entities are permitted depends entirely on your state. For instance, New York permits both PCs and PLLCs but adds limitations, such as restrictions on multi-professional ownership within the same entity, whereas other states have completely different regulations.

In nearly all cases, you can only form a professional entity if all owners are licensed to practice medicine. Some states extend that rule to include related professions, such as physician assistants or nurse practitioners, while others are more restrictive.

This isn’t just legal fine print: it determines what entity structures are even on the table. Before weighing tax benefits or operational complexity, you need to confirm what your state permits. Trying to shortcut this process could put your medical license, malpractice insurance, or billing privileges at risk.

S-Corp Election for Doctors: Understanding What It Actually Is

A common source of confusion is the role of the S-Corporation. Many physicians ask, “Should I be an S-Corp or a PLLC?” The key is understanding that S-Corp isn’t an entity type at all: it’s a tax treatment elected through the IRS.

You can elect S-Corp tax status if you operate through a PC or PLLC (assuming your structure meets eligibility requirements). This election allows your business income to “pass through” to your personal tax return, avoiding double taxation at the corporate level. 

More importantly for physicians, it offers the potential to reduce self-employment taxes by splitting income into two parts:

1. Reasonable compensation paid as W-2 wages (subject to full payroll taxes)
2. Remaining profit distributed as a dividend, not subject to self-employment taxes

On paper, this sounds like an obvious win. But physicians face a unique hurdle: the “reasonable compensation” standard. Because physicians are highly paid professionals whose work is central to revenue generation, the IRS typically requires that their W-2 salaries be substantial. That limits how much income can be taken as lower-taxed distributions.

Worse, S-Corp status can reduce your eligibility for the Qualified Business Income (QBI) deduction, a 20% pass-through deduction available under Section 199A. W-2 wages don’t count as QBI, so structuring too much income as salary may reduce or eliminate this valuable deduction.

Bottom line: S-Corp elections can work for physicians, especially those in higher-income brackets or with flexible work schedules, but the potential savings must be weighed carefully against payroll compliance, reduced QBI deductions, and the true salary expectations for your role.

Professional Corporations for Doctors: Traditional, Compliant, and Formal

Professional Corporations have long been the default structure for physicians, particularly in states that do not allow PLLCs. They’re built specifically for licensed professionals and are governed by corporate law, requiring a board of directors, annual meetings, shareholder agreements, and formal recordkeeping.

The biggest benefit of a PC is compliance. If your state allows only PCs for medical practices, you’re in safe territory. PCs also clearly separate business liability from personal assets and offer “internal protection” in group practices; meaning one physician is not generally liable for the malpractice of another.

But the structure comes with drawbacks. By default, PCs are taxed as C-Corporations, which means profits are taxed twice: once at the corporate level, and again when distributed as dividends. 

PCs are also less flexible than PLLCs in terms of ownership changes, profit allocations, and day-to-day management. Corporate formalities must be observed strictly. Missed filings or documentation errors can have legal and tax consequences.

In short, PCs are a solid choice if required by law or if your practice will benefit from a well-defined corporate structure. But they require more administrative discipline and typically benefit from professional legal and accounting support.

Professional Limited Liability Company (PLLC): Flexibility with Fewer Formalities

Where allowed, PLLCs offer a compelling alternative to PCs. Modeled after standard LLCs, they combine liability protection with pass-through taxation and fewer formalities than a PC. That means no shareholder meetings, no board resolutions, and more flexible internal management: all characteristics that are especially helpful for solo practitioners or smaller group practices.

From a tax standpoint, PLLCs are naturally treated as pass-through entities. That allows members to report business profits directly on their individual tax returns without triggering corporate-level tax. Additionally, PLLCs can elect S-Corp status if the owners meet IRS eligibility requirements and want to pursue self-employment tax savings.

PLLCs are also easier to manage when it comes to adding or removing members, adjusting ownership percentages, or allocating profits unevenly based on roles and responsibilities. These features make them a great fit for multi-physician practices with evolving structures.

That said, PLLCs aren’t available everywhere. In states that do permit them, physicians must still ensure full compliance with licensing board requirements, including naming conventions and professional liability coverage.

Side-by-Side Comparison: PC vs. PLLC vs. S-Corp Election

The right structure ultimately hinges on a few key factors. First, your state law sets the boundaries: some states only allow PCs, while others permit PLLCs. Once legal eligibility is clear, the next consideration is tax strategy. If you're a high-income physician, an S-Corp election layered onto a PC or PLLC might provide savings—but only if the required W-2 salary leaves room for meaningful distributions.

Dive Deeper: Tax Checklist for Doctors: What Physicians Need to File

Operational complexity also matters. Physicians with limited back-office resources often favor the simplicity of a PLLC, while larger practices may need the formal governance of a PC. Lastly, consider your long-term goals. Planning to grow, add partners, or eventually sell? The structure you choose now should accommodate those plans without requiring a costly restructuring later.

Build a Solid Foundation for Your Practice with Revonary

Choosing between a PC, PLLC, or S-Corp election isn’t just a tax decision: it’s a foundational choice that affects how you operate, grow, and protect your medical practice. It’s shaped by where you practice, how much you earn, and what kind of business you want to build. With so much riding on the outcome, physicians shouldn’t make this decision in a vacuum.

At Revonary, we bring clarity to the process. From state law compliance to S-Corp modeling, we help doctors make informed, strategic decisions that support their long-term financial success. 

Ready to structure your practice the right way or need help from an accounting firm that specializes in supporting doctors? Let’s talk.