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Healthcare Org 1, 3.05 (R) [INFO] Topic 2. Governance and Business Structure

3.05 (R) [INFO] Topic 2. Governance and Business Structure

Topic 2. What is the relationship between governance and a healthcare organization's business structure? Organizational governance structures/frameworks are related to the organization's business structure. The organization's business structure is its legal structure (sometimes called the business ownership structure or business form). Different types of business structures usually have different governance structures. Note [FUN]: Links within this section lead to external [FUN] readings not needed for the certificate work. You do not have to visit these external links. Do so only if you have the interest and the time. Note [CERT]: Pay attention to the text in bold. It just may be included on the [CERT] Lesson Three Quiz. As a general rule each business structure (each organization) needs to file documents in the state in which it is formed to be considered a legal entity. The documents and process may vary by state and by business structure. For example, information on creating a business and the documents required in: California can be found at the California Secretary of State, Starting a Business website Massachusetts can be found at the Mass.gov, Types of Businesses website New Jersey can be found at the New Jersey Department of the Treasury, File Certificates of Business Formation website Regardless of the business structure used, all organizations need/want to generate income/revenue. All organizations need money. The first paper money in the "United States" was issued by Massachusetts in 1690. When the Revolutionary War began, the Continental Congress began issuing paper money called Continentals. The United States Department of the Treasury was established by an Act of Congress in 1789 and the United States dollar was adopted as the unit of currency in the United States in 1792. Construction on the current Treasury Building began in 1836. Note [FUN]: The video for Topic 2 - American Artifacts: Treasury Building Restoration - is a YouTube video produced by CSPAN which provides a brief overview of the Treasury Building and its restoration. This section discusses some of the more commonly found business structures in the private sector (military and public sector structures are discussed in the next section - Topic 3). Also discussed in this section are business structures commonly used by healthcare organizations. Therefore, this section discusses (in a brief and highly simplified way): Sole Proprietorship Partnership Limited Liability Company Corporation Business Structures Commonly Used by Healthcare Organizations Sole Proprietorship The United States Small Business Administration (SBA) defines a sole proprietorship as one which: "gives you complete control of your business. You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business. Sole proprietorships do not produce a separate business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business." The United States Internal Revenue Service defines a sole proprietor as “someone who owns an unincorporated business by himself or herself.” The sole proprietor establishes the governance structure for the sole proprietorship in accordance with local, state, and federal laws and is usually the governing body. The sole proprietor is responsible for the organization, its policies, and its accountability. Note: The SBA provides information and resources for small businesses. SBA defines a business as a “small business” based on a number of factors including the organization's North American Industry Classification System (NAICS) code. More information about the SBA definition of a small business can be found at: SBA Table of Size Standards Small Business Size Standards Size Standards Tool Partnership The SBA defines a partnership as the "simplest structure for two or more people to own a business together." There are different types of legal partnerships. Some of them are: General Partnership (GP) - each partner shares equally in profits, losses (personally responsible), and management of the organization Limited Partnership (LP) - one or more general partners who manage the organization along with one or more limited partners who have invested in the organization; all share in the profits, but the limited partners are only responsible for losses up to the amount of their investment Limited Liability Partnership (LLP) - similar to a general partnership in that each partner shares in the profits, losses, and management of the organization, but no partner is responsible for the negligent actions of any other partner Limited Liability Limited Partnership (LLLP) - combined characteristics of the LP and the LLP; one or more general partners who manage the organization along with one or more limited partners who have invested in the organization; limited partners are only responsible for losses up to the amount of their investment; no partner is responsible for the negligent actions of any other partner The IRS defines a partnership as the "relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business." The partners (especially the general partners) establish the governance structure in accordance with local, state, and federal laws and usually form the governing body. The general partners are responsible for the organization, its policies, and its accountability. Limited Liability Company The SBA defines a Limited Liability Company (LLC) as one which takes "advantage of the benefits of both the corporation and partnership business structures. LLCs protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won't be at risk in case your LLC faces bankruptcy or lawsuits." The IRS defines a Limited Liability Company (LLC) as a "business structure allowed by state statute. Each state may use different regulations ... Owners of an LLC are called members ... members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner." The owners/members establish the governance structure in accordance with local, state, and federal laws and usually form the governing body. The owners/members are responsible for the organization, its policies, and its accountability. Corporation The SBA defines different types of corporations. The two most common types and their SBA definitions are: C-Corporation - "a legal entity that's separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable ... Corporations also require more extensive record-keeping, operational processes, and reporting ... Corporations have an advantage when it comes to raising capital because they can raise funds through the sale of stock." S-Corporation - "a special type of corporation that's designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates." The IRS defines a corporation is an organization where "prospective shareholders exchange money, property, or both, for the corporation's capital stock." In addition, a: C-Corporation - "is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax." S-Corporation - "are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income." Corporate governance must recognize the many corporate stakeholders including shareholders. The governance structure of a corporation is defined by its articles of incorporation in accordance with local, state, and federal law. The articles of incorporation is the document which establishes the formation of a corporation in a specific state and is filed with that state government. The specific requirements for the articles of incorporation vary by state. The California Secretary of State provides an informative website on filing the articles of incorporation in the State of California. As a general rule, the documents required by a state to establish a corporation in that state are more extensive than those required to establish a different business structure. When an organization forms a corporation, it is said to be an incorporated organization. Business Structures Commonly Used by Healthcare Organizations The United States Census Bureau publishes a number of valuable tables. Among these are the Statistics of U.S. Businesses (SUSB) tables where the businesses are organized/categorized by their North American Industry Classification System (NAICS) code. The SUSB Glossary provides a definition of all terms used in the SUSB tables. One of the provided tables is: Number of Firms, Number of Establishments, Employment, and Annual Payroll by Enterprise Employment Size for the United States, All Industries: 2015 Earlier in this course (Lesson One, Topic 3) the most relevant NAICS sector code for healthcare organizations was identified as Sector 62: Health Care and Social Assistance. Within Sector 62, the most relevant subsector codes were identified as: 621 (Ambulatory Health Care Services), 622 (Hospitals) and 623 (Nursing and Residential Care Facilities. Some of the Sector 62 data from the above Census Bureau table are displayed in the table attached as a pdf below (NumberHealthCare.pdf). The attached table shows that in 2015 there were 5,921,348 firms (businesses). Of these, 11.1 percent (659,175) are in Sector 62 (Health Care and Social Assistance). The number of firms in Health Care (Subsectors 621, 622, and 623) is 530,783. The largest Health Care subsector is 621 (Ambulatory Health Care Services) with 487,277 firms (91.81 percent of Health Care). Each firm included in the table had at least one paid employee sometime during the year.

NumberHealthCare.pdf PDF File

Another of the provided SUSB tables is: Number of Firms, Number of Establishments, Employment, and Annual Payroll by Legal Form of Organization and Enterprise Employment Size for the United States, NAICS Sectors: 2015 The SUSB tables identify seven (7) different business structures. The Census Bureau calls a firm's (business') business structure in a given state a Legal Form of Organization (LFO). For this section, only four of the seven Census Bureau LFOs are relevant; the relevant types are: "Corporation - An incorporated business that is granted a charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its members. S-Corporation - A form of Corporation where the entity does not pay any federal income taxes. The corporation's income or losses are divided among and passed to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns. Partnership - An unicorporated business where two or more persons join to carry on a trade or business with each having a shared financial interest in the business. Sole Proprietorships - An unincorporated business with a sole owner." It should be noted that the Census Bureau definition of a: LFO-Partnership includes both the SBA/IRS partnership business structure and the SBA/IRS Limited Liability Company (LLC) with more than one owner/member LFO-Sole Proprietorship includes both the SBA/IRS sole proprietorship business structure and the SBA/IRS Limited Liability Company (LLC) with only one owner/member Some of the Sector 62 data from the above Census Bureau table are displayed in the table attached as a pdf below (NAICS62byLFO.pdf). This Census Bureau table does not display Subsector-Level data, only Sector-Level data. The attached table shows that in 2015 there were 5,921,348 firms (businesses). Of these, 11.1 percent (659,175) are in Sector 62 (Health Care and Social Assistance). Each firm included in the table had at least one paid employee sometime during the year.

The most common LFO for Sector 62 is the Corporation (61.5 percent). In the two following attached tables, the definition of the LFO heading is as follows: Corporation includes both the C-Corporation business structure and the S-Corporation business structure Partnership includes both the Partnership business structure and the Limited Liability Company (LLC) business structure with more than one owner/member Individual includes both the Sole Proprietorship business structure and the Limited Liability Company (LLC) with only one owner/member

NAICS62byLFO.pdf PDF File

A firm (LFO) with no paid employees in the past year is called a nonemployer. The specific Census Bureau definition of a nonemployer firm “is one that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the Construction industry), and is subject to federal income taxes.” The Census Bureau also provides Nonemployer Statistics (NES). One NES table is: Geographic Area Series: Nonemployer Statistics by Legal Form of Organization for the U.S. and States: 2015 Data from this NES table are displayed in the table attached as a pdf below (NonemployerNAICSbyLFO.pdf). As is shown in the attached table, there were 24,331,403 nonemployer firms in 2015. Of these, 4.8 percent (1,156,494) were in NAICS Sector 62 (Health Care only). Of these, the largest group (331,138 or 28.8 percent) was Individual (LFO), Home Health Care Services (NAICS: 6216).

NonemployerNAICSbyLFO.pdf PDF File


3.05 (R) [INFO] Topic 2. Governance and Business Structure 3.05 (R) [BİLGİ] Konu 2. Yönetişim ve İş Yapısı

Topic 2. What is the relationship between governance and a healthcare organization's business structure? Organizational governance structures/frameworks are related to the organization's business structure. The organization's business structure is its legal structure (sometimes called the business ownership structure or business form). Different types of business structures usually have different governance structures. Note [FUN]: Links within this section lead to external [FUN] readings not needed for the certificate work. You do not have to visit these external links. Do so only if you have the interest and the time. Note [CERT]: Pay attention to the text in bold. It just may be included on the [CERT] Lesson Three Quiz. As a general rule each business structure (each organization) needs to file documents in the state in which it is formed to be considered a legal entity. The documents and process may vary by state and by business structure. For example, information on creating a business and the documents required in: California can be found at the California Secretary of State, Starting a Business website Massachusetts can be found at the Mass.gov, Types of Businesses website New Jersey can be found at the New Jersey Department of the Treasury, File Certificates of Business Formation website Regardless of the business structure used, all organizations need/want to generate income/revenue. All organizations need money. The first paper money in the "United States" was issued by Massachusetts in 1690. When the Revolutionary War began, the Continental Congress began issuing paper money called Continentals. The United States Department of the Treasury was established by an Act of Congress in 1789 and the United States dollar was adopted as the unit of currency in the United States in 1792. Construction on the current Treasury Building began in 1836. Note [FUN]: The video for Topic 2 - American Artifacts: Treasury Building Restoration - is a YouTube video produced by CSPAN which provides a brief overview of the Treasury Building and its restoration. This section discusses some of the more commonly found business structures in the private sector (military and public sector structures are discussed in the next section - Topic 3). Also discussed in this section are business structures commonly used by healthcare organizations. Therefore, this section discusses (in a brief and highly simplified way): Sole Proprietorship Partnership Limited Liability Company Corporation Business Structures Commonly Used by Healthcare Organizations Sole Proprietorship The United States Small Business Administration (SBA) defines a sole proprietorship as one which: "gives you complete control of your business. You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business. Sole proprietorships do not produce a separate business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business." The United States Internal Revenue Service defines a sole proprietor as “someone who owns an unincorporated business by himself or herself.” The sole proprietor establishes the governance structure for the sole proprietorship in accordance with local, state, and federal laws and is usually the governing body. The sole proprietor is responsible for the organization, its policies, and its accountability. Note: The SBA provides information and resources for small businesses. SBA defines a business as a “small business” based on a number of factors including the organization's North American Industry Classification System (NAICS) code. More information about the SBA definition of a small business can be found at: SBA Table of Size Standards Small Business Size Standards Size Standards Tool Partnership The SBA defines a partnership as the "simplest structure for two or more people to own a business together." There are different types of legal partnerships. Some of them are: General Partnership (GP) - each partner shares equally in profits, losses (personally responsible), and management of the organization Limited Partnership (LP) - one or more general partners who manage the organization along with one or more limited partners who have invested in the organization; all share in the profits, but the limited partners are only responsible for losses up to the amount of their investment Limited Liability Partnership (LLP) - similar to a general partnership in that each partner shares in the profits, losses, and management of the organization, but no partner is responsible for the negligent actions of any other partner Limited Liability Limited Partnership (LLLP) - combined characteristics of the LP and the LLP; one or more general partners who manage the organization along with one or more limited partners who have invested in the organization; limited partners are only responsible for losses up to the amount of their investment; no partner is responsible for the negligent actions of any other partner The IRS defines a partnership as the "relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business." The partners (especially the general partners) establish the governance structure in accordance with local, state, and federal laws and usually form the governing body. The general partners are responsible for the organization, its policies, and its accountability. Limited Liability Company The SBA defines a Limited Liability Company (LLC) as one which takes "advantage of the benefits of both the corporation and partnership business structures. LLCs protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won't be at risk in case your LLC faces bankruptcy or lawsuits." The IRS defines a Limited Liability Company (LLC) as a "business structure allowed by state statute. Each state may use different regulations ... Owners of an LLC are called members ... members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner." The owners/members establish the governance structure in accordance with local, state, and federal laws and usually form the governing body. The owners/members are responsible for the organization, its policies, and its accountability. Corporation The SBA defines different types of corporations. The two most common types and their SBA definitions are: C-Corporation - "a legal entity that's separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable ... Corporations also require more extensive record-keeping, operational processes, and reporting ... Corporations have an advantage when it comes to raising capital because they can raise funds through the sale of stock." S-Corporation - "a special type of corporation that's designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates." The IRS defines a corporation is an organization where "prospective shareholders exchange money, property, or both, for the corporation's capital stock." In addition, a: C-Corporation - "is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax." S-Corporation - "are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income." Corporate governance must recognize the many corporate stakeholders including shareholders. The governance structure of a corporation is defined by its articles of incorporation in accordance with local, state, and federal law. The articles of incorporation is the document which establishes the formation of a corporation in a specific state and is filed with that state government. The specific requirements for the articles of incorporation vary by state. The California Secretary of State provides an informative website on filing the articles of incorporation in the State of California. As a general rule, the documents required by a state to establish a corporation in that state are more extensive than those required to establish a different business structure. When an organization forms a corporation, it is said to be an incorporated organization. Business Structures Commonly Used by Healthcare Organizations The United States Census Bureau publishes a number of valuable tables. Among these are the Statistics of U.S. Businesses (SUSB) tables where the businesses are organized/categorized by their North American Industry Classification System (NAICS) code. The SUSB Glossary provides a definition of all terms used in the SUSB tables. One of the provided tables is: Number of Firms, Number of Establishments, Employment, and Annual Payroll by Enterprise Employment Size for the United States, All Industries: 2015 Earlier in this course (Lesson One, Topic 3) the most relevant NAICS sector code for healthcare organizations was identified as Sector 62: Health Care and Social Assistance. Within Sector 62, the most relevant subsector codes were identified as: 621 (Ambulatory Health Care Services), 622 (Hospitals) and 623 (Nursing and Residential Care Facilities. Some of the Sector 62 data from the above Census Bureau table are displayed in the table attached as a pdf below (NumberHealthCare.pdf). The attached table shows that in 2015 there were 5,921,348 firms (businesses). Of these, 11.1 percent (659,175) are in Sector 62 (Health Care and Social Assistance). The number of firms in Health Care (Subsectors 621, 622, and 623) is 530,783. The largest Health Care subsector is 621 (Ambulatory Health Care Services) with 487,277 firms (91.81 percent of Health Care). Each firm included in the table had at least one paid employee sometime during the year.

NumberHealthCare.pdf PDF File

Another of the provided SUSB tables is: Number of Firms, Number of Establishments, Employment, and Annual Payroll by Legal Form of Organization and Enterprise Employment Size for the United States, NAICS Sectors: 2015 The SUSB tables identify seven (7) different business structures. The Census Bureau calls a firm's (business') business structure in a given state a Legal Form of Organization (LFO). For this section, only four of the seven Census Bureau LFOs are relevant; the relevant types are: "Corporation - An incorporated business that is granted a charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its members. S-Corporation - A form of Corporation where the entity does not pay any federal income taxes. The corporation's income or losses are divided among and passed to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns. Partnership - An unicorporated business where two or more persons join to carry on a trade or business with each having a shared financial interest in the business. Sole Proprietorships - An unincorporated business with a sole owner." It should be noted that the Census Bureau definition of a: LFO-Partnership includes both the SBA/IRS partnership business structure and the SBA/IRS Limited Liability Company (LLC) with more than one owner/member LFO-Sole Proprietorship includes both the SBA/IRS sole proprietorship business structure and the SBA/IRS Limited Liability Company (LLC) with only one owner/member Some of the Sector 62 data from the above Census Bureau table are displayed in the table attached as a pdf below (NAICS62byLFO.pdf). This Census Bureau table does not display Subsector-Level data, only Sector-Level data. The attached table shows that in 2015 there were 5,921,348 firms (businesses). Of these, 11.1 percent (659,175) are in Sector 62 (Health Care and Social Assistance). Each firm included in the table had at least one paid employee sometime during the year.

The most common LFO for Sector 62 is the Corporation (61.5 percent). In the two following attached tables, the definition of the LFO heading is as follows: Corporation includes both the C-Corporation business structure and the S-Corporation business structure Partnership includes both the Partnership business structure and the Limited Liability Company (LLC) business structure with more than one owner/member Individual includes both the Sole Proprietorship business structure and the Limited Liability Company (LLC) with only one owner/member

NAICS62byLFO.pdf PDF File

A firm (LFO) with no paid employees in the past year is called a nonemployer. The specific Census Bureau definition of a nonemployer firm “is one that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the Construction industry), and is subject to federal income taxes.” The Census Bureau also provides Nonemployer Statistics (NES). One NES table is: Geographic Area Series: Nonemployer Statistics by Legal Form of Organization for the U.S. and States: 2015 Data from this NES table are displayed in the table attached as a pdf below (NonemployerNAICSbyLFO.pdf). As is shown in the attached table, there were 24,331,403 nonemployer firms in 2015. Of these, 4.8 percent (1,156,494) were in NAICS Sector 62 (Health Care only). Of these, the largest group (331,138 or 28.8 percent) was Individual (LFO), Home Health Care Services (NAICS: 6216).

NonemployerNAICSbyLFO.pdf PDF File