LLCs and Corporations Won’t Protect Against Professional Liability

Capturing a reprieve from certain liabilities in setting up a corporation or LLC is a crucial element of running these professional entities. However, it’s important to understand exactly what liability protections you earn and what liability you are still exposed to. Some professionals, especially those operating professional corporations, make the mistake of overestimating exactly how liability protection works and what areas of their professional and personal lives it extends to.

One area in particular that isn’t protected purely through an LLC or corporation is professional liability. For instance, an attorney who incorporates their practice is not protected from personal liability if they are found liable for malpractice. The same is said for a doctor, nurse, therapist, or other medical professional operating a professional corporation. But, what does this mean for you as the owner and/or operator of such an entity?

LLCs and Corporations Afford You Asset Protection

When entrepreneurs set up a Limited Liability Company (LLC) or a corporation, one primary motivation is often the protection of personal assets. These business structures are designed to act as a shield, safeguarding the personal wealth and assets of the business owner from the risks and liabilities inherent in running a business. This protection is crucial, as it ensures that, barring exceptional circumstances such as a “piercing of the corporate veil,” personal assets like your home, car, or personal bank accounts are not at risk if your business faces legal troubles.

The concept of the corporate veil is foundational to business law. It creates a legal distinction between the business entity and its owners or shareholders. This separation is what provides the much-valued asset protection. For instance, if your LLC or corporation incurs debt or is sued, your personal assets are typically off-limits to creditors and litigants. This protective barrier is a significant reason why many choose to incorporate their business or form an LLC. It allows business owners, like you, to pursue commercial ventures while maintaining a level of personal financial security. This separation is not just beneficial; it’s often essential for the peace of mind and financial stability of you and your family.

Your Corporation Can’t Protect You Against Professional Malpractice

However, it’s vital to understand the limitations of this liability protection, especially in the context of professional malpractice or honest mistakes. The shield a professional corporation provides does not extend to your professional actions. If, in the course of your business, you are found guilty of professional malpractice – be it due to negligence, error, or omission – this protection evaporates.

In such cases, the individual professional can be held personally liable. This means that, as a professional, you’re still vulnerable in your role as a service provider. Whether you are an attorney, a doctor, a nurse, an engineer, or another licensed professional, the corporate structure does not absolve you from personal responsibility in your professional conduct. A lawsuit for malpractice can result not only in significant financial penalties but also in the loss of professional licenses and certifications. This dual threat to both your financial stability and your professional standing underscores the seriousness of understanding the scope of liability protection that your business structure offers.

Having said this, an LLC or professional corporation can protect you personally from other liabilities, such as employment law violations, defaulting on vendor payments, and other liabilities not directly related to the provision of professional services. So, there are certainly benefits of utilizing en entity in these situations. 

Make Sound Business Choices with Dahl Law Group

Navigating the complexities of liability and incorporation requires seasoned expertise. The Dahl Law Group offers a wealth of experience in these areas, ensuring that you make informed and strategically sound decisions for your business. Understanding the nuances of liability protection is as crucial as choosing the right type of business entity.

With Dahl Law Group, you have a partner who can guide you through these intricate legal landscapes, helping you to safeguard both your personal and professional interests. Contact us today to make informed choices for your business, professional, and personal future.

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At Dahl Law Group, we’re not just a law firm. We’re your trusted advisor for your business and family from beginning to end. As your family and business grow, we will be there by your side. Our passion is providing you with peace of mind and protection through personalized estate and business planning.

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