Independent contractor sole proprietor - switch to single member LLC?

[drj]

Hello everyone

This is my first thread and I'm hoping this great community can provide some help. Here's the quick story on me:

I'm a board-certified medical doctor working as an independent contractor in a sole-proprietor capacity for the past 10 months and just got a new independent contract assignment in Pennsylvania (PA). A recent conversation with a fellow physician opened my mind to the idea of creating a single-member LCC (or, equivalently, a solo-PLLC) for tax purposes by choosing the S-corp tax option and I'm considering doing this before I start my new job in PA. I realize the tax savings are nominal relative to a sole-proprietorship if my income is not greater than a certain amount. However, with regard to liability exposure I've done quite a bit of reading on the LLC/PLLC topic online (including a For Dummies book on LLCs) and it seems there is alot of confusion about what these entities can (and cannot) do for a doctor. As far as I can tell, an LCC/PLLC  does NOT reduce (nor offer any extra protection against) professional liability exposure for physicians, which is why we must obtain malpractice insurance to cover this risk. (1.) Am I correct on this conclusion? Secondly, (2.) I'm unsure whether an LLC/PLLC nonetheless helps to protect my personal assets (e.g. my home, car, savings, retirement, and investing accounts) from a lawsuit related to my professional services as a physician. Thirdly, (3.) suppose I get sued for something unrelated to my role as a physician; would an LLC/PLLC offer protection to my personal assets in this case? In other words, is an LLC/PLLC a smart thing to create regardless of its lack of malpractice protection because it maximizes personal asset protection against non-job related liability? Lastly, (4.) am I mistakenly lumping LLC and PLLC with regard to these issues? Are there different answers to questions (1), (2), and (3) for an LLC versus a PLLC (in PA in particular)?

Thank you!

drj

[Zaphod]

drj wrote:

Hello everyone

This is my first thread and I’m hoping this great community can provide some help. Here’s the quick story on me:

I’m a board-certified medical doctor working as an independent contractor in a sole-proprietor capacity for the past 10 months and just got a new independent contract assignment in Pennsylvania (PA). A recent conversation with a fellow physician opened my mind to the idea of creating a single-member LCC (or, equivalently, a solo-PLLC) for tax purposes by choosing the S-corp tax option and I’m considering doing this before I start my new job in PA. I realize the tax savings are nominal relative to a sole-proprietorship if my income is not greater than a certain amount. However, with regard to liability exposure I’ve done quite a bit of reading on the LLC/PLLC topic online (including a For Dummies book on LLCs) and it seems there is alot of confusion about what these entities can (and cannot) do for a doctor. As far as I can tell, an LCC/PLLC  does NOT reduce (nor offer any extra protection against) professional liability exposure for physicians, which is why we must obtain malpractice insurance to cover this risk. (1.) Am I correct on this conclusion? Secondly, (2.) I’m unsure whether an LLC/PLLC nonetheless helps to protect my personal assets (e.g. my home, car, savings, retirement, and investing accounts) from a lawsuit related to my professional services as a physician. Thirdly, (3.) suppose I get sued for something unrelated to my role as a physician; would an LLC/PLLC offer protection to my personal assets in this case? In other words, is an LLC/PLLC a smart thing to create regardless of its lack of malpractice protection because it maximizes personal asset protection against non-job related liability? Lastly, (4.) am I mistakenly lumping LLC and PLLC with regard to these issues? Are there different answers to questions (1), (2), and (3) for an LLC versus a PLLC (in PA in particular)?

Thank you!

drj

Click to expand...

1. Yep

2. I think this only really helps you if you have employees and are subject to their issues coming back.

3. You should just get some umbrella insurance for these purposes.

Those are first thoughts, things are a little different state to state, but someone else may have a specific case where it would be beneficial.

[jfoxcpacfp]

drj wrote:

Hello everyone

This is my first thread and I’m hoping this great community can provide some help. Here’s the quick story on me:

I’m a board-certified medical doctor working as an independent contractor in a sole-proprietor capacity for the past 10 months and just got a new independent contract assignment in Pennsylvania (PA). A recent conversation with a fellow physician opened my mind to the idea of creating a single-member LCC (or, equivalently, a solo-PLLC) for tax purposes by choosing the S-corp tax option and I’m considering doing this before I start my new job in PA. I realize the tax savings are nominal relative to a sole-proprietorship if my income is not greater than a certain amount. However, with regard to liability exposure I’ve done quite a bit of reading on the LLC/PLLC topic online (including a For Dummies book on LLCs) and it seems there is alot of confusion about what these entities can (and cannot) do for a doctor. As far as I can tell, an LCC/PLLC  does NOT reduce (nor offer any extra protection against) professional liability exposure for physicians, which is why we must obtain malpractice insurance to cover this risk. (1.) Am I correct on this conclusion? Secondly, (2.) I’m unsure whether an LLC/PLLC nonetheless helps to protect my personal assets (e.g. my home, car, savings, retirement, and investing accounts) from a lawsuit related to my professional services as a physician. Thirdly, (3.) suppose I get sued for something unrelated to my role as a physician; would an LLC/PLLC offer protection to my personal assets in this case? In other words, is an LLC/PLLC a smart thing to create regardless of its lack of malpractice protection because it maximizes personal asset protection against non-job related liability? Lastly, (4.) am I mistakenly lumping LLC and PLLC with regard to these issues? Are there different answers to questions (1), (2), and (3) for an LLC versus a PLLC (in PA in particular)?

Thank you!

drj

Click to expand...

1. You are correct.


2. No, your malpractice covers acts related to your professional services but not for those who work for you.


3. If you ran down a pedestrian while driving from home office to the hospital, the PLLC would/could shield you. But, as Zaphod said, this is a case for having adequate home/auto insurance with an umbrella policy picking up where they stop.


4. A PLLC is an LLC owned by professionals. They are otherwise the same.