Can Therapists in California Form LLCs?
If you’re a therapist in California wanting to form an LLC for your private practice, you’re not alone. It sounds like the perfect blend of legitimacy and liability protection, right?
But here’s the not-so-fun truth: Most licensed mental health professionals in California cannot form an LLC to provide therapy.
In California, licensed professionals regulated by the Department of Consumer Affairs (DCA), which includes most therapists, are prohibited from forming LLCs or PLLCs (Professional Limited Liability Companies) to offer professional services.
This includes:
Licensed Marriage and Family Therapists (LMFTs)
Licensed Clinical Social Workers (LCSWs)
Licensed Professional Clinical Counselors (LPCCs)
Licensed Psychologists
Licensed Educational Psychologists
What Can You Do Instead? Professional Corporation (PC)
It is best for any therapist, especially those looking to scale, hire, or protect their assets and liabilities.
Yes, there are paperwork and set-up costs, and you must meet the state’s rules for naming your business. Also, if you are planning to venture into business with someone else, there are additional rules on who can be shareholders and otherwise legally involved in the business. You will also want to be sure to draft bylaws, that is, the internal rules and regulations for your new business that protect everyone involved (and in turn, your clients!). That being said, the pros far outweigh the cons.
It offers liability protection and legitimacy to your operation. It also allows for hiring and scaling, and can provide tax advantages, especially with the S-Corp election.
S Corporation (via PC formation)
Once you form a Professional Corporation, you can then elect S-Corp taxation with the IRS. Keep in mind, an S-Corp is not a legal entity but rather a tax structure. So, think of it this way: A lawyer should assist with the legal entity (Professional Corporation), and a tax professional should help with the tax structure (S-Corp).
What If I Already Formed an LLC?
If you’re offering therapy under an LLC in California, you may be out of compliance, even if it was approved by the Secretary of State or IRS.
You can own an LLC for non-clinical work, like coaching, consulting, or wellness services, but not for providing psychotherapy or mental health services via a professional license.
You may need to dissolve or reclassify the LLC and form a Professional Corporation instead. It’s worth talking to a healthcare lawyer (like us!) to get it sorted correctly.
Forming the right legal structure for your practice isn’t just paperwork, it’s about protecting your license, saving on taxes, and setting yourself up to grow.
Here’s how we can help:
Free 30-minute consult to review your current setup
Help form a Professional Corporation the right way
Sliding scale rates and payment plans are available
Ongoing CalmCounsel support for growing practices
This blog is intended for educational purposes only and does not constitute specific legal advice for any individual. Reading this material does not establish an attorney-client relationship between the reader and our firm. For personalized legal guidance, please consult a licensed attorney in your jurisdiction.