In California, establishing a California Licensed Professional Clinical Counselor Corporation is the only limited liability option that separates professional liability from personal assets for licensed professional clinical counselors providing licensed professional clinical counselling services in California.

In a separate article titled “What Tax Benefits Does a California Licensed Professional Clinical Counselor Corporation Provide?” the tax benefits of a California Licensed Professional Clinical Counselor Corporation will be discussed, but this article will focus solely on liability protection and asset protection for California licensed professional clinical counselors rendering licensed professional clinical counselling services in California.

The goal of this article is to equip licensed professional clinical counselors with the information needed to make informed decisions. It is crucial to ensure that the chosen business entity aligns with the business goals of the licensed professional clinical counselor while adhering to California law, including the California Corporations Code, the Moscone-Knox Professional Corporations Act, the California Business and Professions Code, and other relevant regulations, as well as the rules of government agencies overseeing the practice of a licensed professional clinical counselor, such as the California Board of Behavioral Sciences.

Executive Summary: Putting the Conclusion First for Busy Licensed Professional Clinical Counselors

A licensed professional clinical counselor should form a California Licensed Professional Clinical Counselor Corporation if they are concerned about liability protection or the separation of personal and business assets.

Licensed professional clinical counselors should establish California Licensed Professional Clinical Counselor Corporations for liability protection and to separate their personal assets from the debts, liabilities, obligations, and legal judgments against their professional practice even if only liability protection and separation of assets is sought by the licensed professional clinical counselor, regardless of potential tax benefits or increased operation costs.

For most licensed professional clinical counselors in most licensed professional clinical counselling practices, the experienced corporate attorneys at San Diego Corporate Law recommend the use of a California Professional Corporation for the limited liability protections and tax benefits a California Licensed Professional Clinical Counselor Corporation provides.

It is worth noting that LLCs and PLLCs are not permitted for use with licensed professional clinical counselling practices in California.

Choosing the right business structure for your licensed professional clinical counselling practice can be a complex task. For tailored advice that considers your specific circumstances, schedule a consultation with the experienced attorneys at San Diego Corporate Law. Our team is committed to assisting licensed professional clinical counselor clients in determining whether a California Licensed Professional Clinical Counselor Corporation or another business structure best suits their needs, maximizing tax benefits while minimizing liability risks. Schedule a consultation today to ensure your licensed professional clinical counselling practice is structured for success.

Liability Protection Overview for Licensed Professional Clinical Counselors

Licensed professional clinical counselors often choose to practice as a licensed professional clinical counselor in a California Licensed Professional Clinical Counselor Corporation to limit personal liability and separate their personal assets from the debts, liabilities, obligations, and legal judgments which arise from their licensed professional clinical counselling practice.

Liability Protection for Licensed Professional Clinical Counselors Generally

Unlike sole proprietorships or partnerships, California Licensed Professional Clinical Counselor Corporations offer a liability protection and personal asset protection by separating the personal assets of the licensed professional clinical counselor shareholder from the business debts, liabilities, obligations, and legal judgments against the California Licensed Professional Clinical Counselor Corporation.

Liability Protection for Licensed Professional Clinical Counselor Employers

Limited liability protection is vital for licensed professional clinical counselors who employ other licensed individuals as employees or independent contractors to render professional services, especially when there is a significant risk of malpractice claims. By forming a California Licensed Professional Clinical Counselor Corporation, licensed professional clinical counselors can safeguard their personal assets and future earnings while adhering to state regulatory requirements and complying with agencies which govern rendering professional services in California, such as the California Board of Behavioral Sciences.

When Does the Liability Protection Provided by a California Licensed Professional Clinical Counselor Corporation Makes Sense for a Licensed Professional Clinical Counselor?

Most licensed professional clinical counselors would benefit from practicing with a California Licensed Professional Clinical Counselor Corporation in California, with the exceptions being very low revenue licensed professional clinical counselling practices without employees that do not accept insurance and with no plans for future growth of the licensed professional clinical counselling practice.

Liability Protection Details for Licensed Professional Clinical Counselors

Licensed professional clinical counselors often opt to practice as a licensed professional clinical counselor as a California Licensed Professional Clinical Counselor Corporation to shield themselves from personal liability and to keep their personal assets separate and protected from business debts, liabilities, obligations, and legal judgments related to their licensed professional clinical counselling practice. It is essential for licensed professional clinical counselors to understand the liability protection differences between sole proprietorships and general partnerships compared to those offered by a California Licensed Professional Clinical Counselor Corporation when deciding on the ideal business structure for their licensed professional clinical counselling practice.

General Liability

Licensed professional clinical counselors selecting a business structure for their licensed professional clinical counselling practice should understand the distinctions in general liability protection between sole proprietorships and general partnerships compared to California Licensed Professional Clinical Counselor Corporations.

In this section, “general liability” refers to liabilities arising from contracts with vendors, claims of bodily injury, property damage, and other liabilities not related to employment relationships, malpractice, or professional errors and omissions.

For instance, consider scenarios such as a long-term lease of office space or specialized equipment, a bodily injury resulting from a visitor slipping and falling in the office of a licensed professional clinical counselor, property damage to leased premises or neighboring properties due to the licensed professional clinical counselling practice, or claims of libel, slander, and other reputational harm stemming from professional advertising.

General Liability for Sole Proprietors and General Partnerships

Sole proprietors and general partners practicing as a licensed professional clinical counselor encounter substantial liability risks due to the absence of a distinction between personal and business assets. In a sole proprietorship, the licensed professional clinical counselor owner is personally liable for all business debts, liabilities, obligations, and legal judgments related to general liability claims against the licensed professional clinical counselling practice.

Similarly, in general partnerships, all general partners share joint and several liability. Each individual general partner is personally responsible for all business debts, liabilities, obligations, and legal judgments arising from general liability against the partnership. This means that each licensed professional clinical counselor acting as a general partner for a California licensed professional clinical counselling practice operating as a general partnership is personally liable for all liabilities of the licensed professional clinical counselling practice.

If a visitor is injured on the premises or if the licensed professional clinical counselling practice causes damage to property of a third-party, the personal assets of a California licensed professional clinical counselor sole proprietor or each licensed professional clinical counselor general partner in a general partnership bear unlimited liability for these claims. This unlimited personal liability imposes a significant burden on a California licensed professional clinical counselor sole proprietor or individual licensed professional clinical counselor general partners of a general partnership, especially if the licensed professional clinical counselling practice lacks sufficient insurance or fails to effectively manage risks. It is essential for licensed professional clinical counselor sole proprietors and licensed professional clinical counselor general partners to be aware of these risks and consider protective measures, such as comprehensive insurance policies or restructuring the licensed professional clinical counselling practice to limit personal liability exposure.

General Liability for California Licensed Professional Clinical Counselor Corporations

A California Licensed Professional Clinical Counselor Corporation offers significant protection against personal liability for licensed professional clinical counselors. Unlike licensed professional clinical counselor sole proprietors and licensed professional clinical counselor general partners of a general partnership, who face unlimited personal liability for business debts, liabilities, obligations, and legal judgments, licensed professional clinical counselor shareholders of a California Licensed Professional Clinical Counselor Corporation generally enjoy protection from such business liabilities. This protection means the personal assets of licensed professional clinical counselor shareholders, such as homes and personal bank accounts, are typically shielded from claims related to the debts, liabilities, obligations, and legal judgments of the California Licensed Professional Clinical Counselor Corporation. As a distinct legal entity, the California Licensed Professional Clinical Counselor Corporation is accountable for its own debts, liabilities, obligations, and legal judgments, thereby insulating the personal financial exposure of its licensed professional clinical counselor shareholders.

It is important to recognize that the liability protection offered by a California Licensed Professional Clinical Counselor Corporation has its limitations. Licensed professional clinical counselor shareholders may still be personally liable for their own negligent or wrongful actions. Additionally, this protection does not cover liabilities backed by the personal guarantee of the licensed professional clinical counselor shareholder. To ensure limited liability protection for its licensed professional clinical counselor shareholders, the California Licensed Professional Clinical Counselor Corporation must be operated diligently and in compliance with California laws and regulations.

Despite the limitations mentioned above, the general liability protections afforded to licensed professional clinical counselor shareholders of California Licensed Professional Clinical Counselor Corporations are significant. These protections enable licensed professional clinical counselors to manage their licensed professional clinical counselling practices confidently with the maximum liability protection available under applicable law.

General Liability Conclusion

Some general liabilities for a California licensed professional clinical counselling practice, whether it is structured as a sole proprietorship, general partnership, or California Licensed Professional Clinical Counselor Corporation, are insurable risks. However, if an incident occurs that is not covered by insurance (see coverage in policy documents), if the insurer denies coverage, or if the liability exceeds the insurance limits, the limited liability features of a California Licensed Professional Clinical Counselor Corporation may protect a licensed professional clinical counselor shareholder whereas a California licensed professional clinical counselor sole proprietor or licensed professional clinical counselor general partner of a general partnership would be personally liable for the same claim. The limited liability of a California Licensed Professional Clinical Counselor Corporation offers protection compared to the unlimited personal liability faced by a California licensed professional clinical counselor sole proprietor or licensed professional clinical counselor general partner.

Employment Liability

Licensed professionals choosing a business structure for their practice should understand the differences in employment liability protection among sole proprietorships, general partnerships, and California Licensed Professional Clinical Counselor Corporations.

In this section, the term “employment liability” refers to both the responsibility owed to employees and independent contractors and the vicarious liability to third parties arising from the actions or inactions of employees and independent contractors.

Employment liability to employees encompasses issues such as wage and hour law, sexual harassment, hostile work environment claims, privacy and information privacy claims, discrimination, wrongful termination, and a host of other potential liabilities. In contrast, vicarious liability to third parties might involve a business being held accountable for an injury to a third party arising from an auto accident caused by an employee during company time or some similar claim.

Employment Liability for Sole Proprietors and General Partnerships

Much like general liability issues, licensed professional clinical counselor sole proprietors and licensed professional clinical counselor general partners of general partnerships are significantly exposed to liability due to the absence of a clear divide between personal and business assets. In a California licensed professional clinical counselling sole proprietorship, the licensed professional clinical counselor owner bears full responsibility and unlimited liability for employment-related claims made by employees or independent contractors, as well as for third-party claims concerning employee or independent contractor actions or inactions for which the licensed professional clinical counselor practice is vicariously liable.

In general partnerships, licensed professional clinical counselor general partners share joint and several liability. Each licensed professional clinical counselor general partner has unlimited personal liability for all employee-related claims against the licensed professional clinical counselling practice and for all third-party claims of vicarious liability resulting from employee or independent contractor actions or inactions.

If an employee or independent contractor files a claim for a meal break violation, wrongful termination, or other common workplace issues, the personal assets of a California licensed professional clinical counselor sole proprietor or each licensed professional clinical counselor general partner in a general partnership is subject to unlimited liability. Similarly, if an employee or independent contractor assaults or injures a third party, or damages third-party property, the licensed professional clinical counselor sole proprietor or each licensed professional clinical counselor general partner faces unlimited liability for these claims under the legal principle of vicarious liability.

Unlimited personal liability places a heavy burden on licensed professional clinical counselor sole proprietors and individual licensed professional clinical counselor general partners of general partnerships, particularly when the licensed professional clinical counselling practice is underinsured or poorly manages risks. It is crucial for licensed professional clinical counselor sole proprietors and individual licensed professional clinical counselor general partners to recognize these risks and explore protective measures. Options such as employment practices liability insurance can guard against employee claims, while comprehensive general liability insurance addresses vicarious liability from employee and independent contractor actions or inactions. Alternatively, restructuring the licensed professional clinical counselling practice can help mitigate personal liability exposure.

Employment Liability for California Licensed Professional Clinical Counselor Corporations

A California Licensed Professional Clinical Counselor Corporation provides significant protection against personal liability for licensed professional clinical counselor shareholders, shielding them from employee-related claims. Unlike licensed professional clinical counselor sole proprietors and licensed professional clinical counselor general partners of general partnerships, who face unlimited personal liability for employee and independent contractor claims and incidents caused by employees and independent contractors, licensed professional clinical counselor shareholders in a California Licensed Professional Clinical Counselor Corporation typically enjoy protection from both types of employment liability.

The liability protection provided by a California Licensed Professional Clinical Counselor Corporation ensures that the personal assets of licensed professional clinical counselor shareholders, such as their homes and bank accounts, are generally shielded from claims arising from employment liability related to the licensed professional clinical counselling practice. As a separate legal entity, the California Licensed Professional Clinical Counselor Corporation assumes responsibility for employee and independent contractor claims and third-party claims based on employee and independent contractor actions or inactions under the legal theory of vicarious liability, thereby significantly reducing the personal financial exposure of licensed professional clinical counselor shareholders of a California Licensed Professional Clinical Counselor Corporation.

It is important to recognize that a California Licensed Professional Clinical Counselor Corporation holds liability for employee and independent contractor claims as well as third-party claims due to vicarious liability for the actions or inactions of employees and independent contractors. Although this is preferable to unlimited personal liability for licensed professional clinical counselors, such liability can still significantly impact a California licensed professional clinical counselling practice, even as it protects the assets of the licensed professional clinical counselor shareholders.

Similar to general liability, a California Licensed Professional Clinical Counselor Corporation must operate diligently and comply with California laws and regulations to ensure its licensed professional clinical counselor shareholders receive limited liability protection. This protection extends to both employee claims and third-party vicarious liability claims.

Despite the previously mentioned limitations, licensed professional clinical counselor shareholders enjoy significant employment liability protections with California Licensed Professional Clinical Counselor Corporations, and the safeguards provided allow them to conduct their practices with confidence with the maximum liability protection available under applicable law.

Employment Liability Conclusion

Employment practices liability insurance can cover many, but not all, liabilities related to employee and independent contractor liabilities. Similarly, many general liabilities are insurable risks for a California practice whose employees may expose it to third-party claims under vicarious liability. Whether operating as a sole proprietorship, general partnership, or California Licensed Professional Clinical Counselor Corporation, having comprehensive insurance is crucial. However, if an incident is not covered by insurance, if a claim is denied by an insurer, or if liability exceeds the limits of insurance coverage, the limited liability status of a California Licensed Professional Clinical Counselor Corporation can protect a licensed professional clinical counselor shareholder from personal liability. This stands in contrast to a California licensed professional clinical counselor sole proprietor or licensed professional clinical counselor general partner of a general partnership who would face unlimited personal liability for the same claim.

Malpractice Liability

Licensed professional clinical counselors selecting a business structure for their licensed professional clinical counselling practice should understand the differences in malpractice and errors and omissions liability protection offered by sole proprietorships, general partnerships, and California Licensed Professional Clinical Counselor Corporations.

In this section, “malpractice” is defined as the professional errors and omissions that occur when an individual licensed professional clinical counselor fails to meet the accepted standards of licensed professional clinical counselling practice, resulting in harm or damage. Malpractice liability pertains to the legal accountability licensed professional clinical counselors may incur for not adhering to these standards, which can lead to claims and lawsuits.

For licensed professional clinical counselors selecting a business entity in which to practice as a licensed professional clinical counselor in California, understanding the assignment of malpractice liability is vital. In a California licensed professional clinical counselling practice, the consequences of malpractice can be significant. This section explores the intricacies of malpractice liability, focusing on the risks associated with professional errors and omissions, and examines the liability of licensed professional clinical counselling practice owners in sole proprietorships, general partnerships, and California Licensed Professional Clinical Counselor Corporations.

Malpractice Liability for Sole Proprietors and General Partnerships

California licensed professional clinical counselor sole proprietors and licensed professional clinical counselor general partners of general partnerships bear unlimited liability for their own malpractice, errors, and omissions. Consequently, these licensed professional clinical counselors are personally liable for any malpractice claims filed against them by their patients.

In a general partnership, each of the licensed professional clinical counselor general partners not only bear unlimited liability for the malpractice and errors and omissions claims against them personally, but they also have unlimited liability for the malpractice and errors and omissions of all other licensed professional clinical counselor general partners in the general partnership, giving each licensed professional clinical counselor general partner unlimited personal liability for the malpractice and errors and omissions of each other licensed professional clinical counselor general partner.

Furthermore, as previously mentioned regarding vicarious liability for employees and independent contractors, licensed professional clinical counselor sole proprietors and licensed professional clinical counselor general partners of general partnerships bear unlimited liability for malpractice claims of the professional employees and professional independent contractors who practice for the sole proprietorship or general partnership. This liability stems from the alleged malpractice or errors and omissions of their professional employees under the legal theory of vicarious liability.

The unlimited personal liability associated with malpractice claims for all other professional general partners, employees, and independent contractors makes sole proprietorships and general partnerships less appealing for licensed professional clinical counselling practices because these business entities expose the personal assets of licensed professional clinical counselor owners to unlimited liability for the alleged malpractice of other professionals.

Malpractice Liability for California Licensed Professional Clinical Counselor Corporations

Similar to licensed professional clinical counselor sole proprietors and licensed professional clinical counselor general partners in a general partnership, licensed professional clinical counselor shareholders of a California Licensed Professional Clinical Counselor Corporation face unlimited liability for their own malpractice and professional errors and omissions. This means that licensed professional clinical counselor shareholders remain personally liable for their own acts of malpractice and errors and omissions due to their own negligence.

However, licensed professional clinical counselor shareholders of a California Licensed Professional Clinical Counselor Corporation do enjoy protection from liability related to malpractice and errors and omissions allegedly made by employees, independent contractors, and other professional shareholders. A California Licensed Professional Clinical Counselor Corporations function as a legal entity separate and apart from its shareholders, safeguarding individual shareholders and their personal assets from malpractice liability, except for their own acts of malpractice and their own errors and omissions. In essence, while licensed professional clinical counselor shareholders of a California Professional Corporation are accountable for their own professional negligence, they are not held personally liable for the malpractice or errors and omissions of employees, independent contractors, or fellow licensed professional clinical counselor shareholders within the California Licensed Professional Clinical Counselor Corporation.

This protection exists because the California Licensed Professional Clinical Counselor Corporation, not the individual licensed professional clinical counselor shareholder, is considered the employer of any employee, independent contractor, or other professional shareholder accused of malpractice. As a result, vicarious liability for malpractice falls on the California Licensed Professional Clinical Counselor Corporation rather than the individual licensed professional clinical counselor shareholder. Consequently, while the professional alleged to have committed malpractice or an error or omission and a California Licensed Professional Clinical Counselor Corporation may face lawsuits for malpractice claims due to the actions of employees, independent contractors, or other professional shareholders, the personal assets of licensed professional clinical counselor shareholders not alleged to have personally committed an act of malpractice or an error or omission are typically protected.

As with general liability and employment liability, the limited liability framework for malpractice and errors and omissions relies upon the diligent operation of the California Licensed Professional Clinical Counselor Corporation in compliance with California laws and regulations.

Malpractice Liability Conclusion

Licensed professional clinical counselors, regardless of their chosen business structure, are personally liable for their own acts of malpractice and their own errors and omissions. However, operating as a sole proprietorship or general partnership in California exposes licensed professional clinical counselors to unlimited liability for malpractice and errors and omissions committed by employees, independent contractors, and professional co-owners. In contrast, forming a California Licensed Professional Clinical Counselor Corporation provides protection from personal liability for professional negligence committed by employees, independent contractors, or fellow professional shareholders. While malpractice insurance (professional liability insurance) can cover errors and omissions, its limitations and the possibility of claim denial make malpractice liability and legal fees a significant concern for licensed professional clinical counselors and California Licensed Professional Clinical Counselor Corporations provide the maximum legal protection available under applicable law.

Conclusions About Liability Protections

Choosing the right business entity for a California licensed professional clinical counselling practice requires careful consideration and consultation with legal experts, such as the experienced corporate attorneys at San Diego Corporate Law. It is crucial to have adequate insurance coverage, including general liability insurance, employment practices liability insurance, and malpractice liability insurance (professional liability policy), to protect against claims regardless of the chosen professional business entity. However, insurance is limited in coverage and coverage amounts, and insurers deny claims when possible, so understanding professional liability and selecting an appropriate business structure, such as a California Licensed Professional Clinical Counselor Corporation, can offer further peace of mind for licensed professional clinical counselors and safeguard both their personal and professional assets in ways even the best insurance policies cannot.

Establishing a Business Structure for Future Liabilities

Establishing a business structure conducive to anticipated growth involves selecting a formation that not only accommodates current operations but also facilitates future expansion.

For licensed professional clinical counselors foreseeing growth of their professional practice, choosing to start as a California Licensed Professional Clinical Counselor Corporation is advantageous because it allows these licensed professional clinical counselors to establish their practice once, avoiding the establishment of a practice as a sole proprietorship or general partnership for a year or two before facing the need to establish the licensed professional clinical counselling practice a second time when liability protection and separating personal assets from professional debts, liabilities, obligations, and legal judgments related to the professional practice become a concern.

Finally, for licensed professional clinical counselors who accept insurance, work with a regional center, or otherwise engage with third-party payor panels, the insurance paneling process will need to be repeated for a licensed professional clinical counselor first establishing a sole proprietorship or general partnership and later incorporating to take advantage of the liability protections of a California Licensed Professional Clinical Counselor Corporation.

If within the means of such a licensed professional clinical counselor, the recommendation is to start with a California Licensed Professional Clinical Counselor Corporation formed as a part of starting the licensed professional clinical counselling practice.

A Quick Note on LLCs and PLLCs

A licensed professional clinical counselor may not use a foreign or California limited liability company (LLC), nor may a foreign professional limited liability company (PLLC) be used to practice as a licensed professional clinical counselor in California. Pursuant to California Corporations Code Section 17701.04(e):

“Nothing in this title shall be construed to permit a domestic or foreign limited liability company to render professional services, as defined in subdivision (a) of Section 13401 and in Section 13401.3, in this state.”

This comes as a surprise to many licensed professional clinical counselors, as professional limited liability companies (PLLCs) are commonly used to render professional services in other states.