2015_ice_cream_gratisographyFor many years, one of the perils of being a doctor or lawyer was having to shoulder total responsibility in the event of any sort of professional mistake, and knowing that there was broad public support behind such consequences. It used to be that such professionals were barred from forming corporations, which would provide a limited amount of security should a physician or attorney be accused of malpractice, misconduct or other error related to their area of practice.

Now there are a growing number of professional corporations, which are able to provide backing, support and other professional services to shareholders. The shareholders in a professional corporation — also known as a professional service corporation or professional association — must be licensed within their state or territory, and they must be actively working in their particular field. In addition to the legal and medical professions, accounting and engineering professionals are among those who are likely to form professional corporations.

The advantages of a professional corporation include limited liability for shareholders and some benefits related to taxation. Should a shareholder become the target of a lawsuit, no other shareholder may be sued in the process. Similarly, should the corporation itself be targeted, no individual shareholder can be sued for the corporation’s mistakes, including business debts.

In both of these situations, the protection offered through the professional corporation differs from that provided by many other types of corporations and partnerships. With respect to taxation, a professional corporation may purchase group term life insurance, for which premiums are tax-deductible. In addition, they are allowed to purchase health and accident insurance for their shareholders and deduct those premiums as well, while shareholders can enjoy those benefits tax-free.

When forming a professional corporation, shareholders must file articles of incorporation and state that the corporation’s purpose is solely related to the practice of the relevant profession. The state regulatory or licensing board that oversees the professionals in the state must also approve of the formation and verify that all shareholders are appropriately licensed.

The laws surrounding the establishment of professional corporations can be complicated, and a variety of factors may make your situation different from the norm. An experienced business and corporate law attorney will provide the counsel you need if you have questions about how membership in a professional corporation may affect you and your professional activities. 

BoltNagi is a respected and established corporate and business law firm serving clients throughout the U.S. Virgin Islands.