Which entities are the best liability insulators for professionals?
Professionals also have organizational options. Most of our doctor, dentist,
lawyer and accountant clients prefer professional corporations (PC) or
professional associations (PA), which limits their liability in the same
way a corporation or LLC personally protects the business owner. While
the professional corporation protects the professional from the debts
of their practice; the professional corporation won’t personally
protect the professional sued for his or her own malpractice. Still, these
entities can insulate the professional from errors by other employees,
as well as from other corporate liabilities. Moreover, the professional
corporation’s assets cannot be directly claimed by the professional’s
personal creditors. Nor can the professional’s personal creditors
readily seize the professional’s stock ownership in the professional
corporation since the ownership of these entities, by regulation, usually
must be owned by only professionals from that profession.
Another option is the limited liability partnership (LLP). They are similar
to the LLC, but are, by state law, only for specified professionals. The
LLP is an excellent option for professionals who want to manage their
practice while insulating their personal assets from partnership liabilities.
The professional’s personal assets are protected when conducting
their practice through a limited liability partnership. In contrast, the
general partnership is the professional’s most dangerous form of
organization because each partner has unlimited personal liability for
every partnership debt. Professionals in a general partnership should
instead organize their own professional corporation. Their respective
corporations can then become partners in a general partnership. Though
this arrangement is more cumbersome than forming one limited liability
partnership, it may provide certain tax, regulatory or organizational
advantages. The point is that no professional today can rely solely upon
malpractice insurance for protection. Professionals incur too many other
liabilities in their practice. They need the same sound organizational
protection, as do business owners.