The particular problem
A licensed professional carries an exposure that an ordinary business owner does not. Personal liability for your own professional acts generally follows you regardless of what entity you practice through. An entity can limit exposure to the acts of others; it does not shield you from your own.
Which means the most common structural answer, incorporate and stop worrying, addresses a different problem from the one you actually have.
What the structure can and cannot do
| Generally achievable | Generally not |
|---|---|
| Separating personal assets from the operating business's liabilities | Shielding you from liability for your own professional acts |
| Limiting exposure to acts of partners or employees, depending on jurisdiction | Protecting assets transferred once a claim is in view |
| Placing accumulated wealth outside the practice | Defeating a creditor through a structure with no purpose other than defeating that creditor |
| Making a claim harder and more expensive to pursue against non-practice assets | Any absolute guarantee. Nobody can offer one honestly |
The exposure people plan for least
Professional liability is the risk this group thinks about. Statistically it is not the one most likely to reach a balance sheet.
Marital and family claims reach more balance sheets than professional negligence does, and they are almost never planned for, partly because raising the subject is uncomfortable and partly because the professionals who would normally advise on it are not the ones in the room. It belongs in the analysis, addressed early, for the same reason everything else does: what is arranged in advance holds, and what is arranged in response does not.
Where this lands
- 01Establish what your entity actually does for you in your jurisdiction and profession. Many professionals hold a belief about this that does not match the law where they practice.
- 02Separate accumulated wealth from the practice. The practice generates the exposure; it should not also hold the proceeds.
- 03Treat insurance as the outer layer rather than the whole answer, and check the limits against what a serious claim would actually cost.
- 04Do it while nothing is pending. This is not a preference, it is the condition on which the whole thing depends.
- 05Include the domestic sphere in the analysis, early, alongside the commercial one.
General information only. This article describes law and practice as we understand them at the time of writing. It is not tax, legal, accounting, or investment advice, it does not consider your circumstances, and it does not create an advisor-client or attorney-client relationship. Odyssey Strategic Advisors LLC is not a law firm and is not a CPA firm. Confirm any position with your own tax professional before acting on it. See our disclosures.