For this paralegal certificate assignment, I was asked to write a memo analyzing each business entity type and selecting the one most appropriate for the scenario below.
“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 (P.C.s), 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.”
Office Memorandum
TO: Professor Brown CASE: Drs. Smith, Stone, and Fitch
FROM: Natalie Matos, Paralegal CASE TYPE: Business Organization
DATE OF MEMO: June 02, 2026 OFFICE FILE NUMBER: 26-06-103
RE: Analysis of business organization options for Dr. Smith, Dr. Stone, and Dr. Fitch.
Issue
Pediatricians Dr. Smith, Dr. Stone, and Dr. Fitch want to set up a medical practice together in the state of Nita. Their primary concerns are about the organizational structure, securing a favorable tax rate, and limiting liability for medical malpractice claims. Their options are sole proprietorships, partnerships, corporations, professional corporations (P.C.s), and limited liability partnerships.
Analysis
- Sole Proprietorship
A sole proprietorship is a business owned by one individual and is the simplest form of a business organization. The owner receives all profits and reports business income on a personal income tax return. However, the owner is personally liable for all business debts and obligations. Additionally, it provides no protection from malpractice liability or other business liabilities. The owner is solely responsible for these. (Meinzinger and Miller)
- Partnership
A partnership is a relationship between two or more persons who wish to form a for-profit business. Like a sole proprietorship, taxes are “passed through” to the owners, and profits or losses are reported as part of the partners' personal income tax.
Each partner is jointly and severally liable for partnership obligations. In a medical practice, every partner is liable for another partner's actions, even without involvement or knowledge. This organization has the highest liability risk. (Meinzinger and Miller)
- Corporation
A corporation is a separate legal entity distinct from its owners. The owners of a corporation are called “shareholders”. For tax purposes, the corporation pays taxes on profits and losses. Then it pays any profits to the shareholders, who also pay taxes on that income. Shareholders have limited liability protection, meaning they are not personally responsible for corporate debts beyond their investment. (Meinzinger and Miller)
- Professional Corporation (P.C.)
A professional corporation is formed by licensed professionals. It pays business taxes, and shareholders pay personal taxes on distributed profits. (Sember)
Professionals in a professional corporation remain personally liable for their own malpractice but are generally protected from liability for another shareholder-professional's malpractice.
- Limited Liability Partnership (LLP)
An LLP lets professionals form a partnership with limited liability and pass-through taxation. Profits and losses are “passed-through” to the partners and reported on individual tax returns.
Partners are not personally liable for debts or malpractice committed by others. Each partner is liable for their own malpractice, but an LLP protects partners from liability for another partner's malpractice. (Meinzinger and Miller)
Conclusion
A sole proprietorship is not suitable because there are multiple owners. A partnership carries high personal liability. A corporation offers liability protection, but this may result in double taxation. Both a Professional Corporation and Limited Liability Partnership limit malpractice liability, but the P.C. risks double taxation, while the LLP features pass-through taxation.
Recommendation
The Limited Liability Partnership (LLP) best fits the needs of Dr. Smith, Dr. Stone, and Dr. Fitch for favorable tax treatment and protection against malpractice liability. LLPs generally provide pass-through taxation, avoid corporate-level taxation, and protect each physician from liability for another’s malpractice.
A Professional Corporation (P.C.) also protects against malpractice by other shareholders. However, since favorable personal tax treatment is a priority, the LLP is the best option.
Works Cited
Meinzinger, Mary, and Miller. “Chapter 18. Business Organizations and Employment Law.” Paralegal Today: The Legal Team at Work, 8th ed., Cengage, 2022, pp. 538–68.
Sember, Brette, JD. “Tax Advantages if You Are a Professional Corporation.” LegalZoom, 26 Jan. 2023, www.legalzoom.com/articles/tax-advantages-if-you-are-a-professional-corporation.
References
“Choose a business structure.” U.S. Small Business Administration, www.sba.gov/business-guide/launch-your-business/choose-business-structure.
“Partnership Act – Uniform Law Commission.” Higher Logic, LLC, www.uniformlaws.org/committees/community-home?communitykey=52456941-7883-47a5-91b6-d2f086d0bb44.
“Revised Uniform Partnership Act of 1997 (RUPA).” LII / Legal Information Institute, www.law.cornell.edu/wex/revised_uniform_partnership_act_of_1997_(rupa).