Thanksgiving is a time to reflect on the things we are grateful for. In the business of Professional corporations, we can be grateful for changes that were made over time. Initially, members of key professions like architects, doctors, attorneys and accountants were not allowed to form a corporation because of malpractice concerns. The idea of a corporation is to limit the liability of the stockholders, but malpractice is a huge liability for a physician or an attorney.
By preventing attorneys, physicians and other professionals in this capacity from forming a corporation the idea was to eliminate the possibility of them folding up their corporation at the first sign of a lawsuit. Essentially, they could shut down one corporation and just start up another without the liability following them. Since that’s really unacceptable in many cases, professionals were simply prevented from forming a corporation to begin with.
This changed as professionals used their own societies and boards to regulate malpractice. Doctors were not only liable for their own malpractice but if someone had an accident in their waiting room. An attorney could face a lawsuit if ice on his sidewalk injured another. Their business assets were not protected from these forms of liability. A compromise was reached to allow corporations to shield them from other types of claims such as contracts, unpaid debts and malpractice torts. These Professional Corporations do not shield them from their own professional malpractice, but allow their businesses the protections from other issues that the majority of corporations have.
This history behind professional corporations is something to consider and be thankful for over the holidays. Corporations protect as well as serve the business assets of professionals and stockholders alike.
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