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Asset protection for consulting in california

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  • Asset protection for consulting in california

    Hi all, new poster to WCI though I've tried to read some of the prior posts related to this topic.  Still very new to this.  Hopefully posting in the correct sub-forum.

    Scenario: I am a physician (Pathologist) practicing and licensed in California. Currently a W2 employee looking to create an entity for part time consulting projects (low revenue at the moment, <75K annually but may increase later). For the foreseeable future I would be the only employee. These consulting projects (with the exception of medico-legal below) do not involve direct patient care activities. I am not seeing patients nor am I rendering diagnoses, though the projects typically exist within the healthcare sector; for example providing recommendations to other groups trying to streamline laboratory operations or creating new service lines.

    Some of these consulting projects could, in theory, be completed by an experienced non-physician, though realistically my MD is a contributing factor to being selected as the consultant. However, the activities I would be undertaking do not require a specific license in the state of California.

    The second type of consulting work would be medico-legal, where I am asked to provide expert witness or second opinion review for legal cases in with pathology clinical diagnoses have been rendered.

    At the moment my primary reason for forming a corporation is to isolate consulting activities and shield assets related to those so my personal assets are not at play; favorable taxation is definitely a benefit but not the primary driver of this decision given low revenue at the moment. Since none of these consulting activities requires me to directly offer patient care services to patients, I believe (hopefully correctly) medical malpractice suits are a non-issue.


    - Given the above, what type of entity, if any, would you recommend within the state of California? I was told that physicians must create a California Professional Medical Corporation (CPMC) but does this apply regardless of whether or not I am directly offering medical services which do not specifically need a license (scenario 1)? Medicolegal work would make no sense without a license and thus probably requires a CPMC, which raises the point that perhaps I am better off playing it safe and opening one of those.

    - If I do need to form a CPMC, I’ve been told they default to C-corporations with fairly high tax structures. At the moment I would prefer a pass-through system such as an S-corp. I’ve read conflicting information regarding whether I can create a CPMC and then convert its tax structure to an S-Corp at the first meeting. Is this true?

    - I’ve read a few posts in the WCI archives suggesting that asset protection benefits of S-corps in California are minuscule. Given that my primary reason for doing this is at the moment is having a corporation sign the consulting agreements to shield my personal assets, is this entire process not worth it?


    Thanks very much for everyone's assistance.  Happy to provide clarification about any of the above.

  • #2
    I would call your malpractice carrier about the medicolegal work. My carrier is very responsive to questions about coverage. I know nothing about California business and asset protection law. Lots of California posters here though.


    • #3
      Given the facts and circumstances you posted, I'd recommend operating inside a protective entity. This presumes you have talked to your med-mal insurer and determined that your policy does not cover your business activities. If your insurer states that your policy does cover your business activities, I'd want the answer in writing.

      A CPMC is a C corporation, just a special kind for medical professionals. If your business model falls outside of the code defining CA professional corporations, I'd go with an LLC. If it falls within the definition of a PC in CA, I'd recommend an S-corp.

      Because you individually are a professional within the definition of the code and operating a business that may or may not be considered applicable under the code, I think you need to talk to an experienced attorney with specific knowledge in this area.

      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


      • #4
        Thanks very much for the replies.


        Yes, I definitely do plan on speaking with an attorney though, as you point out, I need to find someone with specific experience in this area as opposed to generic corporate law.


        If anyone has worked with a recommended CA attorney who could assist with the above, I'm happy to discuss offline.