The pros and cons of sole proprietorship
Fam Pract Manag. 2006 Jul-Aug;13(7):16-19.
As an attorney who specializes in asset protection and estate planning, I am concerned about an article published in your journal on how to structure a medical practice [“Choosing the Right Practice Entity,” November/December 2005]. In the article, the author suggests that solo physicians should be sole proprietors. This suggestion sets up physicians and attorneys for tremendous liability. Put simply, if someone slips and falls on the practice’s grounds or is sexually harassed by one of the employees, the sole proprietor will be sued personally. If the practice is structured as a professional corporation, S or C corporation, or a limited liability partnership, the assets of the company, rather than the physician’s assets, would be at risk in such cases. Additionally, there are several tax advantages to being treated as either an S or C corporation.
At the end of my article, I stated that although I usually recommend a sole proprietorship for a physician who does not anticipate practicing with another physician, it’s always best to take the time to evaluate the pros and cons. A sole proprietorship makes sense for a physician who is concerned about what it will cost to set up and maintain a corporation, prefers a draw instead of a salary, does not anticipate hiring a midlevel provider and will have mostly part-time clerical employees, has plenty of nonprofessional liability insurance including an umbrella policy and has a lease or line of credit that would typically require a personal guarantee even if he or she had incorporated. No attorney who recommends this approach would be subject to liability. Of course I would explain to the client that there is potential personal liability for a slip-and-fall accident on the premises, but I would add that I have been practicing health care law for more than 20 years and have never had a client who was liable for a slip-and-fall accident in excess of insurance. In addition, there are typically few or no tax benefits for incorporating a sole proprietorship unless certain unique circumstances exist.
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