Issue 4 - March 2004

Ask the attorney By Deborah Green, Esq.
Corporation limits personal liability

Question: I have formed a professional corporation (PC) with several friends. Can I be held liable for the malpractice and/or other acts of shareholders? What if the PC is a multi-discipline practice?

Answer: Regardless of whether you have formed a chiropractic professional practice or a multi-discipline practice, the purpose of having a corporation is to limit personal liability.

This means that if the PC were sued, the plaintiff would be limited to the PC’s assets only. If both you and the PC were sued for malpractice, and your malpractice insurance were insufficient to cover the judgment, both your assets and the PC’s assets could be attached by a plaintiff. The personal assets of the other shareholders of the PC, however, would not be at risk.

Any officer, shareholder, agent or employee of a professional corporation remains personally and fully liable and accountable for any negligent or wrongful acts or misconduct committed by him or by any person under his direct supervision and control, while rendering professional service on behalf of the PC.

Assuming that all other corporate requirements have been complied with, the other shareholders will not be personally liable for such negligent or wrongful acts or misconduct.

The PC may be liable up to the full value of its property for any negligent or wrongful acts or misconduct committed by any of its officers, shareholders, agents or employees while they are engaged on behalf of the corporation. The assets of a PC, however, shall not be liable for the individual debts of its shareholders.

To maintain limited personal liability, all formal requirements for the PC must be maintained. For example:

•  The PC’s corporate books and records must be properly kept;

• The PC should have sufficient capitalization; and

• The PC should be in compliance with all other activities that indicate that it is a separate entity and not just the alter ego of its shareholders.

Become very familiar with your different roles — shareholder, director and officer:

• Shareholder. As shareholder, you own the corporation.

• Director. As director, you are the manager of the corporation.

• Officer. As officer, you conduct the everyday business of the corporation under the direction of the board of directors.

When the same people act in more than one of these capacities, the practical necessity of keeping the roles straight is very important. The courts consider observance of the formalities as important evidence in deciding whether or not the corporation has been operated as a separate entity. And the formalities are often the source of authority for those who act on behalf of the corporation. Officers, directors and employees who act without authority may be personally liable for their acts.

Hold shareholder meetings at least once a year to elect directors, and at other times for shareholder to approve specific actions as they arise. Make sure that the meeting complies with the bylaws of the corporation, because a meeting that does not comply is not a legal meeting. u

Ms. Green is a practicing attorney in New York and Florida. She can be reached at 954-971-7778, FAX 954-971-3787; or by e-mail at healthattorney@aol.com

LEGAL DISCLAIMER: This column is provided for educational purposes only. The accuracy or timeliness of the information presented herein is not warranted. The information presented is not intended to be advice as to a specific fact pattern with which you may be presented. Accordingly, please note that the information contained herein is not being presented as legal advice with respect to any matter and that no attorney-client relationship is established.