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.