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Austin, Texas Asset Protection Attorney • Physicians Only


Asset Protection Law Firm • Serving Lakeway and the Surrounding Austin, Texas Area

This article was prepared for the TMLT Reporter magazine. Please contact the author for updated information.

Objectives:

  1. Should a medical practice incorporate?
  2. Should the medical practice be a C or S corporation?
  3. What if one physician out of ten wants to be a C-Corp. and the others do not?
  4. Multiple-physician practices: should you use one master corporation or incorporate each physician separately?

Why incorporate – advantages and disadvantages:

You can create a corporation for your medical practice and become an employee of your own professional corporation and thus attain some asset protection and income tax benefits. Only by being incorporated can you take advantage of the income tax advantages include deductions for:

  1. Life insurance
  2. Health insurance
  3. Disability income
  4. Account Receivables factoring / leveraging
  5. Captive Insurance Companies
  6. Pension rescue
  7. Long term care
  8. Medical Expense Reimbursement Plan
  9. Medical Diagnostic Plan

While incorporation does not protect your personal assets from your own medical malpractice, it does offer the following benefits:

  1. Protection from claims against your employees, associates or partners
  2. Protection from contractual claims and employee claims
  3. Protection of income via "corporate wages paid" under Texas Homestead
  4. Tax and fringe benefit planning

The disadvantages of incorporation are:

  1. Cost of incorporation, typically $1,500 plus filing fees
  2. More complex corporate tax return than the Schedule C
  3. Annual Minutes of shareholder / directors meetings
  4. Observing the corporate formalities

Texas Professional Association ( P.A. ) Act

Incorporated medical practices are regulated under a special Texas statute called the Professional Association act or PA due to the position of the Texas Medical Association, which concluded that "the inherent relationship between doctor and patient should not be practiced through a 'pure' corporation entity". The PA Act was therefore designed to provide for the noncorporate association of doctors, and was originally interpreted to apply only to individuals licensed to practice medicine by the Texas board of Medical Examiners … professional service means service that requires license but cannot be performed by corporation.

The PA Act in its present form includes:

  1. podiatrists
  2. dentists
  3. medical doctors
  4. osteopaths

Doctors of medicine and osteopathy and podiatrists may co-own an association.

In 1999, the PA Act was amended to allow professionals in related mental health fields to form an association that is jointly owned by those practitioners such as…

  1. psychology
  2. clinical social work
  3. professional counseling
  4. marriage therapy
  5. family therapy

You can form a PA for a single physician with that single physician serving as the sole Shareholder, Director and Officer. Only licensed professionals may own stock in the PA. Physicians remain personally liable for their own malpractice but are not personally liable for actions of partners, associates, employees, staff, or contractual liability. However, the Act explicitly states that a shareholder of a PA shall have no duty to supervise the manner or means whereby the officers or employees of the corporation perform their respective duties. Shareholders of professional corporations have no greater liability in the role of shareholders than do shareholders of other business corporations.

The PA corporation (but not the individual shareholders, officers, or directors) will be jointly and severally liable with the officer, employee, or agent rendering professional service for such professional errors, omissions, negligence, incompetence, or malfeasance on the part of such officer, employee, or agent when such officer, employee, or agent is in the course of his or her employment for the corporation; therefore, DO NOT LEAVE ASSETS IN THE CORPORATION ! Utilize asset protection strategies to insulate your cash operating account, medical equipment and Accounts Receivable from malpractice judgments, especially if you practice in a multi-physician PA or if you have one or more full or part-time employees.

A PA operates with Articles of Association, Bylaws, Board of Director(s), shareholder(s), and officer(s). The original articles of association, as well as annual statements, must be filed with the Secretary of State. This provision preserves professional ethical standards and assures that the corporate form will not be used as a device to limit the liability of the professional to patients or clients.

Next part – Part 2

  1. C corporation vs. S corporation vs. LLC (limited liability company)
  2. The perfect corporate structure for multiple physician practices
  3. Tax and fringe benefit planning opportunities

For further information, please contact Ken H. Vanway at 512-263-2886 or ken@vanway.org.>

Disclaimer:

The information provided in this article is not to be construed as legal advice and should not be relied upon without the specific consultation with a professional.

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Austin, Texas Estate Planning Attorney, Ken Vanway, provides qualified and comprehensive legal planning in the areas of Estate Planning, Estate Tax Planning, Elder Law, Health Care Documents, Advanced Directives, Wills and Trusts, Revocable Living Trusts, Irrevocable Trusts, Durable Powers of Attorney, Probate & Estate Administration, Special Needs Trusts, Business Law, Business Succession Planning, Family & Small Business, Financial Planning, Buy-Sell Agreements, Limiting Liability, Asset Protection, Exempting Assets, Asset Transfer, Aid & Attendance, and Charitable Planning. The Vanway Law Firm serves clients in the Austin, TX area including, but not limited to, the cities of Lakeway, Spicewood, Bee Cave, West Lake, Barton Creek, and Briarcliff, and the surrounding Austin, Texas metro area.

Copyright © The Vanway Law Firm. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement. Some artwork provided under license agreement.

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phone: (512) 263-2886 e-mail: ken@vanway.org