Professional Corporation (PC)
As with a typical corporation, shareholders in professional corporations are offered protection from liability for debt of the corporation. The shareholders also have no liability if another owner is guilty of malpractice. However, in the case of malpractice, if a plaintiff can point to the overall corporation’s malfeasance in the malpractice, then the professional corporation may be liable.
Another way that liability rules apply differently than they do in a traditional corporation is limits on liability. In the event that one owner is found to have engaged in any practice that could fall under malpractice statutes, then they have unlimited personal liability for their own acts; they do not have liability for the acts of others. The corporation should ensure that it has the proper levels of insurance. Each individual owner should also carry the appropriate insurance policies, such as malpractice or errors and omissions policies.
Organizing as a professional corporation offers many potential advantages to qualified small business owners. Some of the primary advantages involve tax breaks that are not available to unincorporated businesses. For example, professional corporations can create retirement plans and 401(k) plans for their employees that have higher contribution limits than plans available to individuals or unincorporated businesses. In addition, professional corporations can provide health and life insurance as a tax‑free benefit to their employees by establishing a Voluntary Employees’ Beneficiary Association (VEBA). They can also take tax deductions for disability insurance, dependent care, and other fringe benefits provided to employees. In most cases, such benefits are tax‑deductible for the corporation, and also are not considered taxable income for the employees.
Another advantage available to professional corporations is perpetual existence. Unlike sole proprietorships and partnerships—which legally dissolve when an owner dies or leaves the company—professional corporations can continue operations without interruption if a shareholder/employee dies or withdraws. Another advantage is that professional corporations may enable shareholder/employees to avoid personal liability for another employee’s negligence. In most cases, one owner is liable for another’s actions only if he or she would have been liable as a shareholder of a regular corporation. In contrast, all members of a regular partnership are exposed to personal liability.
Professional Limited Liability Company (PLLC)
Just like regular LLCs, a professional LLC protects you personally from debts and lawsuits against the business, with one major exception: Most states do not allow liability protection to extend to malpractice claims.
Also, when one of the partners in a PLLC is liable for negligent acts while practicing her profession, the rest of the partners usually do not share in her personal liability. Assuming that they took no part in the negligence, their assets should remain safe.
This provision not only protects your personal assets should your partner accidentally slip up during surgery, but it also keeps your malpractice claims separate so that your premiums don’t rise if your partner screws up. This protection is a huge benefit over operating as a general partnership, in which you are jointly, personally responsible for your partners’ mistakes.
Members are permitted to have different percentage allocations of profits and losses in a PLLC that are prohibited for shareholders in an S Corporation. For example, if 2 licensee shareholders each had a 50% ownership interest in an S Corporation, it would be required to receive 50% of any profits and losses of the corporation. In a PLLC, each licensee member could have a 50% ownership and voting interest but have a 60/40 (or other disproportionate) distribution of profits and/or losses of the PLLC.
Members have far greater flexibility through an operating agreement to define their rights and obligations than can be achieved in the corporation context with bylaws and minutes. A PLLC operating agreement, if properly prepared, would also cover the sale and transfer of any membership interest, methods for valuing an interest, and payment terms. These would not be covered in the formation documents for a professional corporation. A separate shareholder buy‑sell agreement would have to be prepared.
If you’re considering forming a Nevada Professional LLC/Corporation…We Can Help!