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For a solo medical practice will incorporation provide asset protection over and above the protections of malpractice insurance?

Pleasanton, CA |

I plan to set up my practice in California and I am trying to determine whether to go sole proprietorship v. incorporation.

Attorney Answers 7


  1. Let me answer indirectly by observing that doctors treat patients, not corporations, and doctors are liable for breaches of the applicable standard of care that proximately cause damages to their patients. The determination of what business entity to utilize in a practice takes into account different factors than liability for malpractice. Surely the choice warrants an in-person consultation with a lawyer.

    Not legal advice as I don't practice law in California. It's just my two cents on the facts you describe in light of general principles of law. If you need legal advice, And I think it would be a good idea, please consult a lawyer who holds California licensure; i.e., someone other than myself.


  2. It is conventional to use an LLP for doctors, but more for tax reasons than asset protection. You will be sued, if at all, as both an individual and the corporation/LLP. Insurance and other forms of asset protection will be more effective than the business entity alone.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.


  3. Hi,

    I am not sure, but it is possible that doctors are only allowed to set up their practices using certain legal entities -- for example, you might be allowed to use a Professional Corporation, but not a C or S Corp. Lawyers are subject to similar rules.

    If California's rules about doctors allow incorporation, I would certainly do that. Being a sole proprietor means you keep personal liability on your actions. For example, if you botch a surgery and the patient is permanently disabled, you could lose your house, car, stocks, etc to pay for that patient's care.

    If the amount needed for that care is less than your insurance, you should be fine (assuming your insurance pays). If the amount is way over your insurance amount, you could be liable for the excess portion and lose your house, car, etc.

    Incorporation puts up a hard barrier between your personal assets and professional assets. If you get sued for malpractice, you could lose your license and your practice, but you won't lose your house.

    Hope that helps. I've done incorporations before so let me know if I can help further.

    Andy

    The answer provided above is based upon California and/or New York law and is based solely upon the limited information provided by the poster. No attorney-client relationship is created. A future in-person consultation may reveal additional facts that may change the answer provided.


  4. Professional corporations under CA law do not protect you from liability for malpractice (and you are required as a licensed physician under CA law to be a professional corp.).

    If we could just incorporate as professionals to limit malpractice liability every professional would do so and then carry no insurance and tell creditors to look to the corp. to collect against and keep no assets in the corp.

    You should seek legal counsel on this issue.

    BW


  5. As my colleagues already pointed out, incorporation will not protect you from lawsuits by patients, (ex)-employees (they are the biggest source of litigation for medical practices) or whoever is trying to go after your net worth.

    A properly crafted asset protection plan and an extensive malpractice insurance coverage will provide you peace of mind.

    You need the advice of an attorney with proven expertise in the area of asset protection.

    Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4 Billion in client assets. Answers given by him in this forum do not establish an attorney-client relation. He advises to seek a specialized attorney in the area of your interest for legal representation.


  6. As noted by one of my colleagues, what you need is an aggressive asset protection plan tailored to your needs not an incorporation. The time to set up asset protection is almost always before trouble begins because then it may be too late.

    This is not legal advice but a general comment on society. International Law 24/7 hotline +1-202-318-2406 - Dr. Jonathan Levy, PhD calls or emails usually returned within 24 hours.


  7. As a physician you will be responsible for your negligence whether in an entity or not and that should be covered by malpractice. The "protection" comes from when you add other physicians/owners in the group where you might be isolated from liability from their acts in an entity. Aside from liability, you might have tax benefits from practicing in an entity. Speak to a tax or health care attorney in your state.

    LEGAL DISCLAIMER: I am licensed to practice law only in Washington, Alaska, and Idaho. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses are only general legal education and are only general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information on this site is not a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state.

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