There are a wide variety of legal tools available to help physicians protect their personal wealth for themselves and their families. Understanding some legal basics about limited liability companies (LLCs) will help you spot your own needs and ask the right questions.
The following information is intentionally written to be as general as possible and merely scratches the surface of LLC law. While the details of drafting and use can be delegated to trustworthy advisers, there are some foundational basics you must learn as part of your own financial literacy. After all, legal tools are meaningless if used incorrectly, and their application must be tailored to your practice’s unique needs.
LLC buyers beware
One of the most common, effective and commonly abused legal structures is the LLC. LLCs are great tools for specific purposes, and I use them literally every day whenever appropriate.
I’ve covered some of the technical details of LLCs before, including the idea that an LLC combines the limited liability features of a corporation with the tax efficiencies and operational flexibility of a partnership. An LLC can protect the assets from an unrelated liability of the individual owner. An LLC also protects the owner from the internal liability the asset itself may create, such as owning a rental home or business.
Unfortunately, this well-proven tool is often used incorrectly. In some cases, the problems start with the people or organizations selling the LLC, especially if they just provide “document preparation” or a do-it-yourself kit rather than specific legal advice. In most cases, these promoters are salespeople, not lawyers. In a few cases, they may also have law degrees but are not currently licensed, are not offering their services as your attorney, or both.
If these salespeople are not currently licensed attorneys, they:
- can’t provide specific legal advice,
- usually don’t have professional standards or supervision,
- don’t have professional malpractice liability or insurance and
- conversations are not bound by attorney-client privilege.
I routinely hear reports from clients and advisers attending medical conferences about the tall tales or promises made by LLC promoters. Many medical conference organizers are not doing appropriate due diligence on these vendors who pay for an opportunity to come sell you a product, often over one of your meals, as opposed to speakers who are there to teach you something without any other agenda.
Not only are these LLC promoters substituting kits and forms for representation, they often provide information that’s just plain wrong. In some cases, they are wrong about the features of what they are selling. Other times, they are spreading harmful myths.