Licensed professionals in Georgia look to professional corporation laws in that state to guide them in forming and operating their professional corporations. A professional corporation is a special type of corporation designed to give members of the license professionals, such as doctors, lawyers, accountants, architects and engineers, the ability to enjoy the advantages of a corporate structure while limiting their personal liability for the professional malpractice of other shareholders in the corporation.
Corporation laws comprise the body of laws that govern how various kinds of corporations are formed, as well as their relations with other companies, individuals, and the public. These laws address the rights and responsibilities of the owners, managers and employees of a corporation in Georgia.
A professional who wants to know more about how forming a professional corporation with professional colleagues would benefit from a lawyer consultation with a Georgia lawyer.
In Georgia, What Is the Purpose of a Professional Corporation?
Doing business as a professional corporation in Georgia offers a number of advantages to the professionals involved including the following:
- Limited Liability Protection: Licensed professionals are the shareholders and are generally not personally responsible for the corporation’s debts and obligations beyond the amount they have invested. This protects the personal assets of the shareholders from the corporation’s liabilities.
- Of course, the corporation’s responsibility for its own legitimate liabilities is not limited. And the liability of shareholders for their own personal debts and obligations is also not limited by the fact that they are shareholders in the corporation. In addition, each professional is still responsible for their own professional malpractice.
- Credibility and Perpetual Existence: Operating as a professional corporation enhances a company’s reputation as it demonstrates continuity and commitment to professionalism. This is because the corporation can continue even if ownership changes when licensed professional shareholders leave or assume ownership.
- Access to Investment Opportunities: A professional corporation can engage in such business activities as raising funds through the sale of stock or using other measures to finance the growth of the corporation.
- Enforcement of Professional Standards: The shareholders of a professional corporation can enact measures to ensure oversight of the corporation’s professional members and enforce high professional standards. Of course, they generally restrict shareholder status to licensed professionals who then may be subject to special training and oversight.
One of the main goals of a professional corporation is to limit the liability of the other shareholders for the professional malpractice of one shareholder under Georgia’s professional liability laws. So if one shareholder is liable for professional malpractice, they alone would bear the financial consequences and not the corporation or the other shareholders.
With respect to other liability other than liability for professional malpractice, the liability falls on the corporation and not any individual shareholder. Of course, in rare cases the corporate veil can be pierced.
How Does Partnership by Estoppel Affect Liability in Georgia?
A partnership by estoppel arises when individuals or entities represent themselves as “partners” in a business, even though they do not have any formal partnership agreement. The law of partnership by estoppel provides that if a third party relies on this representation to their detriment, all of the “partners” may be liable for the misconduct of any one “partner” exactly as if they were in an actual partnership.
Partnership by estoppel does not apply to professional corporations.
What Types of Professions Usually File Under Professional Corporation Laws in Georgia?
The professionals that usually file to form professional corporations in Georgia are doctors, attorneys, architects, accountants, and optometrists. But any licensed professionals are entitled to form a professional corporation in Georgia.
How Are Professional Corporations Different From Other Types of Corporations?
A corporation generally is a legal entity with a certain structure that is provided and regulated by state law. A corporation exists separately from its owners who are referred to as “shareholders.” This means that only the corporation itself is responsible for the debts and other liabilities of the corporation. The basic corporate structure protects the personal assets of the shareholders from the corporation’s liabilities and the liabilities of other shareholders.
The shareholders of a professional corporation have the ability to exercise oversight of the shareholders in their professional practice and to enforce expert professional standards. Of course, the shareholders are generally all licensed professionals. The corporation may provide them with special training and, again, oversight of their professional practice.
One of the main goals of a professional corporation is to limit the liability of the professional shareholders for the professional malpractice of one shareholder under Georgia’s professional liability laws. So if one shareholder is liable for professional malpractice, they alone would bear the financial consequences and not the corporation.
There are a number of different types of business incorporating structures from which entrepreneurs can choose when starting a business. The corporation is only one type of business structure. Other options are general partnerships, limited partnerships and limited liability partnerships. The limited liability company, which combines features of a partnership and a corporation is another option.
A group of professionals who want to work in some kind of group business structure would want to talk to a Georgia corporate lawyer to review the advantages and disadvantages of each type. Generally, for licensed professionals, a limited liability partnership or professional corporation is going to be preferable for managing professional malpractice issues.
Each one shares the basic corporate structure, e.g. ownership by shareholders, but their purpose, the number and type of shareholders, the amount of stock that is issued, and their overall tax structure may be quite different.
Some standard corporation types include the following:
- C corporations
- S corporations
- Professional corporations
- Foreign corporations
- Non-profit corporations
- B corporations.
It should be noted that professional corporations offer shareholders limited liability that protects their personal assets from having to satisfy the corporation’s liability. However, tax liability depends on whether the professional corporation elects an S-Corp or C-Corp tax status for its operations.
In Georgia, How Does Limited Liability Work With Professional Corporations?
As noted above, licensed professionals who are shareholders in a professional corporation may still have personal financial responsibility for any professional malpractice for which they are liable. Of course, they are going to have professional liability insurance to cover any liability. However, in any event, the assets of the professional corporation and the personal assets of the shareholders would not be reachable to cover malpractice liability.
With respect to other financial liabilities of the corporation, the assets of shareholders would not be accessible to debtors whatever the source of the debt with very limited exceptions.
When courts find that the corporate organization is being misused, then the corporate entity can be disregarded. Basically, the shareholders lose the limited liability protection and are treated like partners. Partners are personally liable for the debts and obligations of the business.
Courts justify piercing the corporate veil with the alter ego theory. The idea is that if corporate officials disregard the corporate entity and conduct their business as if it were a partnership, then there is no true unity of ownership and interest as there should be in a corporation. Therefore the corporation ceases to exist as far as the shareholders are concerned.
There are two basic requirements for piercing the corporate veil as follows:
- Whether the shareholders fail to respect the corporate form by failing to respect corporate formalities and business practices, and
- Whether this failure would result in a fraud or injustice with respect to a corporate creditor.
Do I Need a Georgia Corporate Lawyer for Help With Professional Corporation Issues?
If you are a licensed professional who is considering forming a professional corporation with your colleagues, you want to talk to a Georgia corporate lawyer. Your lawyer can review your plan and advise you as to whether a Georgia professional corporation offers the advantages you seek.
If you have a claim against a corporation and need a professional assessment of how you can recover the compensation you deserve, you too want to talk to a Georgia corporate lawyer for guidance in asserting your rights.
