Choosing the Right Corporate Entity for Your ABA Therapy Business
Selecting the best corporate structure for your ABA therapy company is a decision with far-reaching implications. The entity you choose determines how you manage liability, taxes, funding, and operations—factors that can make or break a business in the competitive and highly regulated field of applied behavior analysis. Below, we examine the most common corporate structures and provide real-world examples of how they could be used for ABA therapy businesses.
1. Sole Proprietorship
A sole proprietorship is the simplest and most common business structure for solo practitioners. The owner and the business are legally the same entity, making setup quick and straightforward.
Example Use Case:
An independent BCBA just starting their career might choose a sole proprietorship to launch their practice. They see a small number of clients and operate out of a home office or visit clients directly.
Strengths:
•Ease of Setup: Minimal paperwork and low cost. A practitioner could begin operations with just a business license and insurance.
•Direct Control: The owner makes all decisions and keeps all profits.
•Low Administrative Burden: No complex reporting requirements.
Weaknesses:
•Unlimited Personal Liability: If a client files a lawsuit, the owner’s personal assets are at risk. In the ABA field, where misunderstandings with clients or families can occur, this is a significant drawback.
•Limited Scalability: This structure isn’t ideal for expansion or hiring employees.
•Tax Burden: Income is reported on the owner’s personal tax return, which could lead to higher tax rates.
2. Partnership
A partnership involves two or more individuals sharing ownership. General partnerships divide responsibilities equally, while limited partnerships have at least one general partner and one limited partner with restricted liability.
Example Use Case:
Two experienced BCBAs join forces to open a clinic. One handles clinical operations, and the other manages administration and outreach.
Strengths:
•Shared Responsibilities: Partners can divide duties, such as client care and administrative work, which is helpful in a multifaceted ABA business.
•Cost Sharing: Partners can pool resources for expenses like clinic space, assessment tools, and software.
•Simple Setup: Less complex than corporations.
Weaknesses:
•Liability Concerns: In a general partnership, all partners are personally liable for business debts and legal claims.
•Potential Conflicts: Disagreements between partners could disrupt business operations.
•Limited Longevity: The partnership dissolves if one partner leaves unless there’s a formal agreement.
3. Limited Liability Company (LLC)
An LLC provides a flexible balance of liability protection and tax benefits, making it a popular choice for small-to-medium ABA therapy businesses.
Example Use Case:
An ABA company with a small team of RBTs and one BCBA uses an LLC structure to protect personal assets while keeping administrative costs manageable.
Strengths:
•Liability Protection: Owners’ personal assets are protected if the business faces a lawsuit—a critical advantage in the ABA industry, where disputes with insurance providers or client grievances can occur.
•Tax Flexibility: Can be taxed as a sole proprietorship, partnership, or corporation, depending on the owner’s preference.
•Operational Simplicity: Fewer compliance requirements than corporations.
Weaknesses:
•Self-Employment Taxes: LLC owners may face higher taxes if they do not elect corporate taxation.
•State-Specific Requirements: Filing and maintenance vary by state, which can complicate operations for businesses with multi-state locations.
4. Corporation
C-Corporation (C-Corp)
A C-Corp is a separate legal entity ideal for larger, growth-oriented ABA therapy companies.
Example Use Case:
A multi-state ABA provider with several clinics and hundreds of employees adopts a C-Corp structure to attract investors and fund further expansion.
Strengths:
•Scalability: Can raise capital through stock sales to grow the business or expand services.
•Liability Protection: Shareholders’ personal assets are protected.
•Business Continuity: Ownership changes don’t affect the company’s operations.
Weaknesses:
•Double Taxation: Profits are taxed at the corporate level and again as dividends.
•Complex Compliance: Requires extensive reporting and regulatory adherence.
•Costly Setup: Legal and administrative expenses are high.
S-Corporation (S-Corp)
An S-Corp avoids double taxation by passing profits and losses through to shareholders’ personal tax returns.
Example Use Case:
A growing ABA business with multiple BCBAs and several RBTs forms an S-Corp to save on taxes while maintaining liability protection.
Strengths:
•Tax Savings: Owners only pay personal taxes on profits, avoiding corporate-level taxation.
•Liability Protection: Personal assets are safeguarded.
•Attracts Investors: Easier to secure funding from investors seeking an equity stake.
Weaknesses:
•Strict Eligibility Requirements: Limited to 100 shareholders who must be U.S. citizens or residents.
•Administrative Burden: Requires regular meetings, detailed record-keeping, and compliance with IRS regulations.
Choosing the Best Entity for Your ABA Business
Factors to Consider
1.Liability: With high stakes in client care, ABA businesses must prioritize protecting owners’ personal assets.
2.Taxes: Evaluate whether pass-through taxation (LLC or S-Corp) or corporate taxation (C-Corp) aligns with your financial goals.
3.Scalability: Consider a corporation if you aim to expand significantly or attract investors.
4.Administrative Complexity: Smaller ABA practices often benefit from the simplicity of an LLC or sole proprietorship.
Recommendations by Business Type
•Solo BCBA Practice: Sole proprietorship or LLC for liability protection.
•Small ABA Clinic: LLC for flexibility and liability coverage.
•Regional ABA Company: S-Corp for tax savings and scalability.
•National ABA Provider: C-Corp for growth and investor attraction.
Conclusion
Selecting the right corporate entity is foundational for your ABA therapy company’s success. Whether you’re a solo BCBA or managing a multi-state provider network, your choice affects everything from liability protection to growth potential. For many, starting with an LLC offers the ideal balance of simplicity, flexibility, and protection. However, businesses with larger ambitions or specific tax needs may benefit from the structure of a corporation.
Consult a legal or tax professional to tailor your decision to your ABA business goals. By setting up the right structure from the start, you can ensure a solid foundation for sustainable growth and effective service delivery.
Several ABA therapy businesses have successfully scaled their operations by adopting C corporation structures and franchising models. Notable examples include:
1. Success On The Spectrum (SOS):
Established in 2016, Success On The Spectrum is a national autism treatment franchise that has become the fastest-growing ABA franchise in the U.S. SOS provides a variety of therapy services to children with developmental delays, including ABA, speech, and occupational therapy. The franchising company, SOS Franchising, offers training and quality monitoring to each location’s owner, facilitating rapid expansion across various regions.
2. Hi-5 ABA:
Hi-5 ABA, Inc. is a franchisor for ABA service providers across the nation. Their unique and proven model offers an opportunity for human service professionals, like Board Certified Behavior Analysts (BCBAs), to establish and run their own ABA practices without handling administrative tasks such as credentialing, billing, payroll, and more. This approach has enabled Hi-5 ABA to expand its presence through a network of locally owned practices.
3. Essential Speech and ABA Therapy:
Founded in 2017, Essential Speech and ABA Therapy has grown to meet the needs of both parents and children they serve. They offer franchise opportunities, allowing qualified individuals to own an ABA therapy franchise in their community. This model has facilitated their expansion and the provision of services to a broader population.
These companies exemplify how adopting a C corporation structure and leveraging franchising models can effectively scale ABA therapy services, enabling them to reach a wider audience and provide consistent, high-quality care across multiple locations.
