Business entity selection

I'm starting a small animal practice, and I'm hoping to add an associate with buy-in potential after two years. Which business entity would be best, a Limited Liability Company (LLC) or Service Corporation?

"Your state determines your initial options, which usually include a sole proprietorship, several versions of partnerships and corporations, and one or more version of LLCs," says Veterinary Economics Editorial Advisory Board member Karen Felsted, CPA, MS, CVPM, a consultant for Brakke Consulting Inc. in Dallas. Not all states offer the same options, so you should start there. Next, consider how you'll be taxed. "The entity choice you make at the state level will limit your choices at the federal taxation level, so most people make the decisions concurrently. Be sure to consider taxes imposed at both the national and state level," she says. Finally, she recommends you make this decision in conjunction with your tax accountant and attorney to be sure you understand all the ramifications. (For more, see "S corp, C corp, LLC, LLP: Which One Is Best?" in the September 2004 issue.)