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Healthcare Organizations and Entity Types: What You Need to Know About Benefit Corporations

When deciding on an entity type for a healthcare organization, including physician practices and specialty groups like oncology practices, many different aspects of the organization should be taken into consideration, including funding, taxability, profit distribution to owners, social objective/non-profit mission, and limitation on activities, among others. One option, incorporating as a benefit corporation, may legally protect an organization’s goals by creating accountability towards the organization’s social and environmental commitments.

Benefit Corporations are a new type of entity which is becoming increasingly common nationwide. Established by many state statutes, a benefit corporation is unique from standard for-profit businesses in that it allows a business to prioritize an overall social objective, such as a decision’s potential impact on society or the environment, over purely a financial benefit for the shareholders.

Although the requirements for a benefit corporation may vary from state to state, such entities generally must:

(i) Maintain a corporate purpose of positive impact on society

(ii) Consider the impact of decisions on employees, the community, and the environment

(iii) Make available to the public, a benefit report that assess the overall social and environmental performance of the entity

While benefit corporations differ from traditional C-corporations, S-corporations and Limited Liability Companies in purpose, accountability and transparency, such entities are similar for taxation purposes in that there are no current tax benefits in place simply for being a benefit corporation. They are additionally similar to standard for-profit businesses in that they may make profits, may be shareholder owned and pay stock dividends.

It should be clear that a benefit corporation is not the same as a Non-Profit (or Not-For-Profit) Corporation. A Non-Profit is a special type of corporation that has been organized to meet specific tax-exempt purposes, and whose primary purpose is not to generate a profit. To qualify for Nonprofit status, the corporation must be formed to benefit (i) the public, (ii) a specific group of individuals, or (iii) the membership of the Non-Profit entity.

It is important for healthcare organizations to choose the right entity type for their business. Frier Levitt has over 20 years of experience helping healthcare organizations at every level of the process. Contact us today to speak to an attorney.