Med spa entity structure, explained

If you own a med spa, you may own more than one business without fully realizing it. How those entities are set up affects your compliance, your taxes, and how much you can pay yourself. Here is the structure in plain terms.

Why med spas often use two entities

Most states follow some version of a legal doctrine called the corporate practice of medicine, which generally requires that a practice providing medical services be owned by a physician or physician-owned corporation.¹ Because injectables, lasers, and many other med spa treatments are medical in nature, they usually fall under these rules.

The rules vary widely. Some states are strict, some set ownership percentages, and some, like Florida, have no corporate practice of medicine prohibition at all.³ That’s why your structure should be set with a healthcare attorney in your state.

How the MSO model works

In states where the doctrine applies, a common approach is the management services organization (MSO) model. It separates the business into two entities:²

• The medical practice. Owned by a physician or other eligible licensed provider. It handles clinical care and medical decisions.
• The MSO. Often owned by the business owner. It provides management, administrative, and support services, such as the space, equipment, staff, marketing, and back office.

The two are connected by a management services agreement, under which the practice pays the MSO a fee for those services. The MSO can’t interfere with medical judgment.²

How money moves between entities

Patient payments for medical services generally belong to the medical practice. The practice then pays its expenses, including the management fee to the MSO. How that fee is set is one of the most important decisions in the whole structure. Fees tied to a percentage of medical revenue can raise fee-splitting concerns in some states, so the method should be reviewed by your attorney.

Accounting and tax considerations

Separate books for each entity

The IRS expects a complete and separate set of records for each business.⁴ That means separate bank accounts, separate books, and management fees recorded consistently on both sides.

Payroll and your own salary

Who employs your providers and staff depends on your structure. If your entity is an S-corp and you work in it, you’ll also need to pay yourself a reasonable salary before taking distributions.⁵

Entity tax elections

Each entity may have its own tax classification and filing. Whether an S-corp election makes sense for one, both, or neither depends on profit and ownership.

Inventory, equipment, and prepaid revenue

Product inventory, device purchases, and prepaid packages or memberships all need to sit in the right entity, and be tracked properly, to give you real margins.

What to do next

If you aren’t sure how your entities are set up, or how money moves between them, start with a review: your formation documents, your management services agreement, and a year of books for each entity. For how we work with med spa owners, see med spa, salon, and spa accounting.

Frequently asked questions

Does a med spa need two entities?

Often, depending on the state. Where the corporate practice of medicine applies, a common setup is a physician-owned medical practice plus a separate management services organization owned by the business owner. Some states, such as Florida, don’t have this restriction.

What is an MSO in a med spa?

A management services organization is a separate business that provides non-medical services to the medical practice, such as space, equipment, staff, and administration, in exchange for a management fee under a management services agreement.

Can a non-physician own a med spa?

It depends on the state. In some states non-physicians can own a med spa directly. In others they typically participate through an MSO. A healthcare attorney should set the structure.

Sources

1. American Med Spa Association, Understanding MSOs
2. American Med Spa Association, Who Can Own a Medical Spa: Unpacking MSOs
3. American Med Spa Association, Med Spa Ownership
4. IRS, Publication 583, Starting a Business and Keeping Records
5. IRS, S Corporation Compensation and Medical Insurance Issues

This article is for educational purposes only and is not tax, legal, or investment advice. Tax rules change and depend on your specific facts. Talk with a qualified professional before acting on anything here.