Doing Business Through an LLC or Corporation Does Not Protect Doctors

Traditional wisdom says that if you want to protect your personal assets, you have to set up a business entity. Indeed, you don’t have to search very deep online to find articles warning of the dangers of doing business as a sole proprietor:

A sole proprietor can be held personally liable for any business-related obligation. This means that if your business doesn't pay a supplier, defaults on a debt, or loses a lawsuit, the creditor can legally come after your house or other possessions. Nolo.com

There is definitely some truth to that. By setting up a business entity, you are creating something that, if corporate formalities are observed, the law treats as a person, completely separate from all other persons. Which means that any debts or obligations incurred by that “person” (the business entity you set up) can only subject the business, and not the shareholders, officers, or owners of the business to personal liability for business debts.

And in certain circumstances, that is exactly the protection you need.

For example, Sam Walton and the Walton family are not doing retail in their own names. They create a corporation, Wal-Mart, Inc., through which they conduct their retail business. And that means if someone gets hurt at Wal-Mart, they aren’t suing the Waltons, and they are unable to take the Waltons’ personal assets if they get a judgment against Wal-Mart.

The same is true if Wal-Mart defaults on payment on one of its contracts. The contracting party is going to go after Wal-Mart, not the Waltons, because the contract was with Wal-Mart.

And it is in just those scenarios that a business entity provides a layer of protection.

In a medical practice, if a doctor orders medical supplies, contracts to pay for them through the business, and defaults, the doctors personal assets are safe (as long as the doctor is running the business correctly and following those rules that serve as a prerequisite for the separation of business and personal assets).

But what about potential malpractice litigants? When a doctor makes a mistake (or the patient is not pleased with the results and thinks the doctor makes a mistake), the patient does not necessarily know (and definitely doesn’t care) about the doctor’s business. Because it was not the business that treated the patient. It was the doctor. And in those scenarios, when the patient sues the doctor for alleged mistakes the doctor makes, the business entity never enters the scenario. It thus provides no protection.

To protect assets, then, a doctor has to do more than set up an entity. At the Fortune Law Firm, we specialize in helping doctors set up structures that protect them not just against business debts, but against real and perceived mistakes made by the doctor.