Medical Malpractice Claims (2)

Medical Malpractice Claims (2)

With malpractice claims, separate functions

Often, owners of a company will organize all of their various business functions under one entity. Sometimes there is a practical legal or tax requirement demanding that companies hold all of their business functions in the same entity. However, where possible, it’s often advisable to separate some or all of the business functions into several different entities. This can usually be completed without triggering any taxes. The problem with having all of the various business functions organized under one entity is that if a medical malpractice claim is made against the company, then each and every asset of the business (including the various business functions) will be subject to the malpractice claim.

If instead each separate business function were owned and titled in a separate business entity, then each separate business function would be liable for only the malpractice claims brought against that separate company.

Owning assets in a sole proprietorship or in a general partnership will provide little, if any, protection against medical malpractice claims and is not a very good asset protection strategy because, as stated above, sole proprietors and general partners have unlimited personal liability for activities carried on in their business.

There is also a risk that even if an entity is created, creditors may be able to pierce the corporate veil if the owners of the entity do not adhere to corporate formalities or if it can be proved that the sole purpose of creating the entity was to subvert creditor claims, such as a malpractice claim. The rules for piercing the corporate veil vary state by state. Therefore, please consult with your legal advisor to establish an appropriate asset protection strategy to ward off medical malpractice claims.

More on medical malpractice and asset protection

Next> DAPTs: Learn more about forming a Domestic Asset Protection Trust

More> FAPTs: The ins and outs of Foreign Asset Protection Trusts

More> Understanding voluntary disclosure and offshore bank accounts as you protect your foreign assets

More> Medical Malpractice Insurance: A simple primer to answer the question of whether to insure or not insure

Back> Protecting Your Medical Practice: There is not one single asset protection strategy that will protect all your assets from medical malpractice — ranging from your medical practice to your most beloved possessions

About the Author: Steven Nofar is licensed in Michigan as an Attorney and Certified Public Accountant. Mr. Nofar practices primarily in the areas of estate and tax planning, business succession planning, asset protection, charitable gift planning and tax controversies with federal, state and local taxing authorities. Mr. Nofar’s clients range from small to large business owners and span across the U.S., Europe, Asia, and the Middle East. If you need additional information or clarification related to this article, please contact him at 248-335-5000 or at


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