If you are thinking of investing in a secondary business venture, you should consider the potential impact it will have on you and on your medical license and practice. Before investing in or becoming associated with any outside venture, it is critical to proactively identify and limit risks and to insulate your personal assets and your medical practice. Here are four strategies to consider to help protect yourself and your livelihood.
When establishing a new business or investing in one, it is important to utilize a corporate form as the business entity. Corporate forms (e.g. corporations and limited liability companies) can provide adequate protection for you, your medical practice and your personal wealth from business liabilities. While each entity has its own advantages and disadvantages (e.g. administration and corporate governance, flexibility in structure, taxes, etc.), in most situations, both business entities are treated as separate from its owners, and only the company itself will be held responsible for its actions. That protection is often referred to as the “corporate veil.” The protection of the corporate veil is not, however, absolute. Under certain circumstances, the corporate veil can be pierced and you may be held responsible for the business’ actions and any related obligations.
You should obtain liability insurance to protect yourself. Your insurance policy will be your first line of defense from people who may look to you personally to satisfy a claim. If you are a director on a board, you should make sure that the company has secured director’s and officer’s liability insurance that will protect your personal assets in a suit against the company. Additionally, structuring contracts with protection provisions can limit your exposure to liabilities (e.g. force majeure, indemnification, limiting representations and warranties, and accurately stating the scope of services.)