So You Formed the Wrong Business Entity?
Recently, I’ve noticed that many professional services businesses including physicians, law firms, etc. are formed as a corporation or limited liability company, rather than a professional services corporation or a professional limited liability company. These businesses are unaware that licensed professionals who wish to limit personal liability when operating a business are required to form a professional entity (such as a professional limited liability company) instead of the regular nonprofessional counterparts (such as a limited liability company). For more information on this requirement, please refer to my January blog post .
What are the consequences of operating a professional service business as a nonprofessional entity instead of a professional entity? Because a nonprofessional business entity is disqualified from providing professional services, such as chiropractic and physical therapy services, courts will not recognize the existence of such a business entity. The liability shield that business owners hoped to create when forming a business entity to protect them from personal liability is nonexistent. Business owners operating an invalid business entity are potentially as exposed to personal liability as those who did not incorporate or form a limited liability company.