?Dr. Smith, Dr. Stone, and Dr. Fitch are all pediatricians. They want to set up a practice together. Personal income-tax rates are lower than corporate income-tax rates. They are also concerned about liability for medical malpractice claims and want protection. They live in the state of Nita, which allows sole proprietorships, partnerships, corporations, professional corporations (PCs), and limited liability partnerships. The doctors come to your law firm and ask for guidance in determining which type of business entity is best suited for their needs. Your supervising attorney assigns you the task of drafting a memo analyzing each type of business organization that is available to the doctors in the state of Nita and asks you to recommend one for the doctors. Write a memo analyzing each

Question

type of business entity, and select the one that is most appropriate for the doctors.

What will be an ideal response?

Answer 1

?The sole proprietorship would provide the lower tax rate, because individual tax rates are lower than corporate rates. However, it would not provide any protection of personal assets in theevent of a medical-malpractice claim. Also, a sole proprietorship is only available to oneperson. Thus, the sole proprietorship would not be a good choice for the doctors.A partnership would also provide the tax benefits that the doctors are looking for; however,it would not allow protection from personal liability from medical-malpractice claims.A corporation would provide the benefit of limited liability from medical-malpractice claims.However, corporate tax rates are higher than individual tax rates, so the doctors would pay more in income taxes if they were to incorporate. This would be true if they choose a professional corporation as well. Professionals do not usually do business in the corporate form unless it is in the PC form.The limited liability partnership would provide the tax benefits of a partnership by providing the individual income-tax rate that the doctors are seeking. It would also provide protection from the personal liability for the medical malpractice of the other partners. Thus, the limited liability partnership is probably the best form of business entity for the doctors.