Lawyers and doctors in the past often have conducted their businesses through corporations known as professional corporations. Such corporations served dual purposes: to shield the lawyer or doctor from personal liability for the debts and liabilities of the person’s professional practice and to obtain a corporate tax rate on profits of the business that in the past were lower than rates on individual income.
Tax structures change, and a professional corporation that once obtained a lower tax rate on retained earnings now may classified by the Internal Revenue Service as a personal service corporation with a flat tax rate. That rate may exceed the rate that the professional would pay if there were no professional corporation.
Professional corporations still serve to shield their owners from personal liability for debts and liabilities of the corporation with an important exception for liability of the professional for malpractice. Thus, a professional corporation made up of two lawyers would shield one of the lawyers from personal liability for acts attributable to the other lawyer. In another example, a doctor’s professional corporation would shield the doctor’s personal assets from liability or debts of the corporation attributable to the acts of the doctor’s staff.
Limited liability companies or limited liability partnerships are other structures that may be considered by professionals to shield personal assets from debts or liabilities of the professional’s business. Such structures are established according to the particular laws of each of the states, and a state government office should have helpful information available to assist the professional in examining the suitability of a business structure providing greater protection of personal assets from liability than a sole proprietorship or traditional partnership. Professionals other than doctors and lawyers may also wish to consider such alternative business structures.
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