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Forming a PC for personal liability

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  • Forming a PC for personal liability

    I work in a private EM group and just made partner. A number of partners have formed their own personal corporations to protect themselves against a potential lawsuit against our group. Is this really necessary? I understand a PC doesn't defend against malpractice. Their concern is that if another partner commits gross negligence or something else flagrant and the group as a whole is sued, our own personal assets may be at risk. This seems a bit far fetched to me but has me concerned.

    I had thought about forming a PC for the tax savings but it seemed like too much hassle for me. I'm wondering if I should go ahead and do this for the liability concerns. Of note, I have minimal exposed assets. My home is jointly owned with my spouse and all my retirement accounts are in 401s, Roths, etc. I do have a decent amount of cash in an emergency fund and hope to start a non taxed sheltered investment account down the road (but right now I'm just maxing my tax sheltered accounts). Thanks!

  • #2
    I guess nothing is impossible, but I agree with your assessment of "far fetched." Does the group itself make money? i.e. How can your AR be at risk for someone else's negligence?

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    • #3
      The partner group makes money from the professional fees for which we bill. We don't have any other assets/capitol. The pro fees generate several million a year and I feel would be the "deep pocket" should some sort of claim came up. Without disclosing too many details, there was an HR issue (not involving medical care) that could have resulted in a lawsuit against the group itself. I believe this prompted the PC trend. My sense is that for a lawsuit like this that the group/company would be on the hook. Naturally that would be my future income. I'm not really sure how they would go after me personally but I am a partner in the company.

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      • #4
        not many lawyers on here. Thats who i would want to ask

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        • #5
          A PC won’t necessarily save you taxes, fwiw. In fact, it will most likely cost you more than it will save you. I think the multiple layers are overkill and this is a lemming alert, but maybeHank or another atty will step in. It’s been too long since I slept in a Holiday Inn.
          Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Originally posted by jacoavlu View Post
            not many lawyers on here. Thats who i would want to ask
            Yea, somebody should invite the attorneys.

            ha, that is a sentence that I've never formed before.

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            • #7
              The group that I am most familiar with has employer liability insurance. The cost of this insurance is quite reasonable and it protects the group from”HR” type issues with employees. So if there is a discrimination lawsuit, or a sexual harassment lawsuit, or anything else like that, the insurance company funds the defense and covers the indemnity.

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              • #8
                When I owned my practice I had several insurance policies in addition to malpractice. You might want to check on this. I had employee dishonesty (embezzlement), business interruption, and general liability. I used the business interruption policy after a tornado hit my town and the electricity was off for 5 days. I know lots of practices that have been embezzled. General liability will cover "slip and falls" etc. I never bought sexual harassment insurance because I am female and all employees were female. You can't insure against everything.

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                • #9
                  Thanks everyone. I’ll check on the employer liability insurance. That sounds like a great idea. I agree on the tax issue. I’m trying to simplify my financial situation and this seems like a ton of work with marginal tax utility. I’ve never heard of a “lemming alert!”

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                  • #10
                    It seems unlikely that the PC would add much meaningful protection. This is state specific, so feel free to check with an attorney in your state. (Then again, if you ask a barber if you need a haircut...)

                    As for employee dishonesty insurance, I'm a fan. Typically coverage is limited to no more than $25K, yet embezzlement routinely runs into the six figures. The real advantage of employee dishonesty insurance isn't making the business owner whole. The real advantage is that you're more likely to see effective prosecution of the embezzler.

                    For whatever reason, doctors and dentists are viewed by the police as rich marks who should have been paying better attention to the nefarious embezzler. (Never mind that you're busy seeing patients vs. babysitting your front desk every minute of the day.) But if you steal from an insurance company, there are are whole host of additional criminal laws you're violating and the State takes that very seriously.

                    Don't buy employee dishonesty insurance expecting it will cover all of your losses. Buy it instead to ensure vigorous criminal enforcement and to keep the next doctor from being embezzled. Embezzlers rarely steal from just one office if left unchecked.

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                    • Hatton
                      Hatton commented
                      Editing a comment
                      I never understood why my colleagues never prosecuted the theft.
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