In California, establishing a California Professional Marriage and Family Therapy Corporation is the only limited liability option that separates professional liability from personal assets for licensed marriage and family therapists providing marriage and family therapy services in California.

In a separate article titled “What Tax Benefits Does a California Professional Marriage and Family Therapy Corporation Provide?” the tax savings of a California Professional Marriage and Family Therapy Corporation will be discussed, but this article will focus solely on liability protection and asset protection for California licensed marriage and family therapists rendering marriage and family therapy services in California.

The goal of this article is to equip licensed marriage and family therapists with the information needed to make informed decisions about personal liability protection. It is crucial to ensure that the chosen business entity aligns with the business goals of the licensed marriage and family therapist 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 marriage and family therapy, such as the California Board of Behavioral Sciences.

Executive Summary: Putting the Conclusion First for Busy Marriage and Family Therapists

A licensed marriage and family therapist should form a California Professional Marriage and Family Therapy Corporation if they are concerned about liability protection or the separation of personal and business assets.

Licensed marriage and family therapists should establish California Professional Marriage and Family Therapy 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 marriage and family therapist, regardless of potential tax benefits or increased operation costs.

For most licensed marriage and family therapists in most marriage and family therapy 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 Professional Marriage and Family Therapy Corporation provides.

It is worth noting that LLCs and PLLCs are not permitted for use with marriage and family therapy practices in California.

Choosing the right business structure for your marriage and family therapy 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 marriage and family therapists in determining whether a California Professional Marriage and Family Therapy Corporation or another business structure best suits their needs, maximizing tax benefits while minimizing liability risks. Schedule a consultation today to ensure your marriage and family therapy practice is structured for success.

Liability Protection Overview for Licensed Marriage and Family Therapists

Licensed marriage and family therapists often choose to practice marriage and family therapy in a California Professional Marriage and Family Therapy Corporation to limit personal liability and separate their personal assets from the debts, liabilities, obligations, and legal judgments which arise from their marriage and family therapy practice.

Liability Protection for Marriage and Family Therapists Generally

Unlike sole proprietorships or partnerships, California Professional Marriage and Family Therapy Corporations offer a liability protection and personal asset protection by separating the personal assets of the licensed marriage and family therapist shareholder from the business debts, liabilities, obligations, and legal judgments against the California Professional Marriage and Family Therapy Corporation.

Liability Protection for Marriage and Family Therapist Employers

Limited liability protection is vital for licensed marriage and family therapists 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 Professional Marriage and Family Therapy Corporation, marriage and family therapists 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 Professional Marriage and Family Therapy Corporation Makes Sense for a Licensed Marriage and Family Therapist?

Most licensed marriage and family therapists would benefit from practicing with a California Professional Marriage and Family Therapy Corporation in California, with the exceptions being very low revenue marriage and family therapy practices without employees that do not accept insurance and with no plans for future growth of the marriage and family therapy practice.

Liability Protection Details for Licensed Marriage and Family Therapists

Licensed marriage and family therapists often opt to practice marriage and family therapy as a California Professional Marriage and Family Therapy 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 marriage and family therapy practice. It is essential for licensed marriage and family therapists to understand the liability protection differences between sole proprietorships and general partnerships compared to those offered by a California Professional Marriage and Family Therapy Corporation when deciding on the ideal business structure for their marriage and family therapy practice.

General Liability

Licensed marriage and family therapists selecting a business structure for their marriage and family therapy practice should understand the distinctions in general liability protection between sole proprietorships and general partnerships compared to California Professional Marriage and Family Therapy 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 marriage and family therapist, property damage to leased premises or neighboring properties due to the marriage and family therapy 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 marriage and family therapy encounter substantial liability risks due to the absence of a distinction between personal and business assets. In a sole proprietorship, the marriage and family therapist owner is personally liable for all business debts, liabilities, obligations, and legal judgments related to general liability claims against the marriage and family therapy 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 marriage and family therapist acting as a general partner for a California marriage and family therapy practice operating as a general partnership is personally liable for all liabilities of the marriage and family therapy practice.

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

General Liability for California Professional Marriage and Family Therapy Corporations

A California Professional Marriage and Family Therapy Corporation offers significant protection against personal liability for licensed marriage and family therapists. Unlike marriage and family therapist sole proprietors and marriage and family therapist general partners of a general partnership, who face unlimited personal liability for business debts, liabilities, obligations, and legal judgments, licensed marriage and family therapist shareholders of a California Professional Marriage and Family Therapy Corporation generally enjoy protection from such business liabilities. This protection means the personal assets of licensed marriage and family therapist 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 Professional Marriage and Family Therapy Corporation. As a distinct legal entity, the California Professional Marriage and Family Therapy Corporation is accountable for its own debts, liabilities, obligations, and legal judgments, thereby insulating the personal financial exposure of its licensed marriage and family therapist shareholders.

It is important to recognize that the liability protection offered by a California Professional Marriage and Family Therapy Corporation has its limitations. Licensed marriage and family therapist 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 marriage and family therapist shareholder. To ensure limited liability protection for its licensed marriage and family therapist shareholders, the California Professional Marriage and Family Therapy 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 marriage and family therapist shareholders of California Professional Marriage and Family Therapy Corporations are significant. These protections enable licensed marriage and family therapists to manage their marriage and family therapy practices confidently with the maximum liability protection available under applicable law.

General Liability Conclusion

Some general liabilities for a California marriage and family therapy practice, whether it is structured as a sole proprietorship, general partnership, or California Professional Marriage and Family Therapy Corporation, are insurable risks. However, if an incident occurs that is not covered by insurance, if the insurer denies coverage, or if the liability exceeds the insurance limits, the limited liability features of a California Professional Marriage and Family Therapy Corporation may protect a licensed marriage and family therapist shareholder whereas a California marriage and family therapist sole proprietor or marriage and family therapist general partner of a general partnership would be personally liable for the same claim. The limited liability of a California Professional Marriage and Family Therapy Corporation offers protection compared to the unlimited personal liability faced by a California marriage and family therapist sole proprietor or marriage and family therapist 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 Professional Marriage and Family Therapy 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, marriage and family therapist sole proprietors and marriage and family therapist 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 marriage and family therapy sole proprietorship, the licensed marriage and family therapist 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 marriage and family therapist practice is vicariously liable.

In general partnerships, marriage and family therapist general partners share joint and several liability. Each marriage and family therapist general partner has unlimited personal liability for all employee-related claims against the marriage and family therapy 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 marriage and family therapist sole proprietor or each marriage and family therapist 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 marriage and family therapist sole proprietor or each marriage and family therapist general partner faces unlimited liability for these claims under the legal principle of vicarious liability.

Unlimited personal liability places a heavy burden on marriage and family therapist sole proprietors and individual marriage and family therapist general partners of general partnerships, particularly when the marriage and family therapy practice is underinsured or poorly manages risks. It is crucial for marriage and family therapist sole proprietors and individual marriage and family therapist 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 marriage and family therapy practice can help mitigate personal liability exposure.

Employment Liability for California Professional Marriage and Family Therapy Corporations

A California Professional Marriage and Family Therapy Corporation provides significant protection against personal liability for licensed marriage and family therapist shareholders, shielding them from employee-related claims. Unlike marriage and family therapist sole proprietors and marriage and family therapist 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 marriage and family therapist shareholders in a California Professional Marriage and Family Therapy Corporation typically enjoy protection from both types of employment liability.

The liability protection provided by a California Professional Marriage and Family Therapy Corporation ensures that the personal assets of licensed marriage and family therapist shareholders, such as their homes and bank accounts, are generally shielded from claims arising from employment liability related to the marriage and family therapy practice. As a separate legal entity, the California Professional Marriage and Family Therapy 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 marriage and family therapist shareholders of a California Professional Marriage and Family Therapy Corporation.

It is important to recognize that a California Professional Marriage and Family Therapy 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 marriage and family therapists, such liability can still significantly impact a California marriage and family therapy practice, even as it protects the assets of the licensed marriage and family therapist shareholders.

Similar to general liability, a California Professional Marriage and Family Therapy Corporation must operate diligently and comply with California laws and regulations to ensure its licensed marriage and family therapist shareholders receive limited liability protection. This protection extends to both employee claims and third-party vicarious liability claims.

Despite the previously mentioned limitations, licensed marriage and family therapist shareholders enjoy significant employment liability protections with California Professional Marriage and Family Therapy 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 Professional Marriage and Family Therapy 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 Professional Marriage and Family Therapy Corporation can protect a licensed marriage and family therapist shareholder from personal liability. This stands in contrast to a California marriage and family therapist sole proprietor or marriage and family therapist general partner of a general partnership who would face unlimited personal liability for the same claim.

Malpractice Liability

Licensed marriage and family therapists selecting a business structure for their marriage and family therapy practice should understand the differences in malpractice and errors and omissions liability protection offered by sole proprietorships, general partnerships, and California Professional Marriage and Family Therapy Corporations.

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

For marriage and family therapists selecting a business entity in which to practice marriage and family therapy in California, understanding the assignment of malpractice liability is vital. In a California marriage and family therapy 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 marriage and family therapy practice owners in sole proprietorships, general partnerships, and California Professional Marriage and Family Therapy Corporations.

Malpractice Liability for Sole Proprietors and General Partnerships

California marriage and family therapist sole proprietors and marriage and family therapist general partners of general partnerships bear unlimited liability for their own malpractice, errors, and omissions. Consequently, these marriage and family therapists are personally liable for any malpractice claims filed against them by their patients.

In a general partnership, each of the marriage and family therapist 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 marriage and family therapist general partners in the general partnership, giving each marriage and family therapist general partner unlimited personal liability for the malpractice and errors and omissions of each other marriage and family therapist general partner.

Furthermore, as previously mentioned regarding vicarious liability for employees and independent contractors, marriage and family therapist sole proprietors and marriage and family therapist 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 marriage and family therapy practices because these business entities expose the personal assets of marriage and family therapist owners to unlimited liability for the alleged malpractice of other professionals.

Malpractice Liability for California Professional Marriage and Family Therapy Corporations

Similar to marriage and family therapist sole proprietors and marriage and family therapist general partners in a general partnership, licensed marriage and family therapist shareholders of a California Professional Marriage and Family Therapy Corporation face unlimited liability for their own malpractice and professional errors and omissions. This means that licensed marriage and family therapist shareholders remain personally liable for their own acts of malpractice and errors and omissions due to their own negligence.

However, licensed marriage and family therapist shareholders of a California Professional Marriage and Family Therapy 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 Professional Marriage and Family Therapy 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 marriage and family therapist 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 marriage and family therapist shareholders within the California Professional Marriage and Family Therapy Corporation.

This protection exists because the California Professional Marriage and Family Therapy Corporation, not the individual licensed marriage and family therapist 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 Professional Marriage and Family Therapy Corporation rather than the individual marriage and family therapist shareholder. Consequently, while the professional alleged to have committed malpractice or an error or omission and a California Professional Marriage and Family Therapy Corporation may face lawsuits for malpractice claims due to the actions of employees, independent contractors, or other professional shareholders, the personal assets of licensed marriage and family therapist 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 Professional Marriage and Family Therapy Corporation in compliance with California laws and regulations.

Malpractice Liability Conclusion

Licensed marriage and family therapists, 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 marriage and family therapists to unlimited liability for malpractice and errors and omissions committed by employees, independent contractors, and professional co-owners. In contrast, forming a California Professional Marriage and Family Therapy 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 a significant concern for licensed marriage and family therapists and California Professional Marriage and Family Therapy Corporations provide the maximum legal protection available under applicable law.

Conclusions About Liability Protections

Choosing the right business entity for a California marriage and family therapy 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, 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 Professional Marriage and Family Therapy Corporation, can offer further peace of mind for marriage and family therapists 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 marriage and family therapists foreseeing growth of their professional practice, choosing to start as a California Professional Marriage and Family Therapy Corporation is advantageous because it allows these marriage and family therapists 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 marriage and family therapy 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 marriage and family therapists 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 marriage and family therapist first establishing a sole proprietorship or general partnership and later incorporating to take advantage of the liability protections of a California Professional Marriage and Family Therapy Corporation.

If within the means of such a licensed marriage and family therapist, the recommendation is to start with a California Professional Marriage and Family Therapy Corporation formed as a part of starting the marriage and family therapy practice.

A Quick Note on LLCs and PLLCs

A licensed marriage and family therapist may not use a foreign or California limited liability company (LLC), nor may a foreign professional limited liability company (PLLC) be used to practice marriage and family therapy 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 mental health professionals, as professional limited liability companies (PLLCs) are commonly used to render professional services in other states.