In my workshops Financial Success in Mental Health Practice: Practical Strategies and Ethical Strategies the question of which corporate structure one should choose for oneself is always a topic of interest. That is, should one be a sole-proprietor or incorporate into a structure such as an LLC (Limited Liability Corporation) or an S-Corporation?

During the workshop I ask the following question: If you are incorporated in an LLC and you have one million dollars of malpractice insurance and are successfully sued for two million dollars, how much money do you owe?  At least 25% of the workshop participants respond, “Zero. You are protected by the corporation.” Unfortunately this is an incorrect answer, as you would owe one million dollars to the injured party.  If these funds are not available through the corporation then they are expected to be paid through your personal assets.

A corporate structure will protect you from certain debts. For example, if you have not paid your office rent, for the office supplies that you ordered, or your cell phone bill. However, malpractice is another situation altogether and your personal assets are not protected by the corporate shield.

Thus there is wisdom in purchasing as much malpractice insurance that is available to you. The extra cost for an extra million or two million dollars worth of insurance is likely only a couple of hundred dollars per year. If you are successfully sued for a large amount of money and you only purchased the minimal amount you will likely be very angry at yourself