Limiting Liability: Professional Corporations and LLPs
Business professionals who would normally operate as a partnership may choose to limit their liability by becoming a professional corporation (PC) or a limited liability partnership (LLP). These professional associations are typically chosen by physicians, CPAs, lawyers, and so on.
The two partnership forms of legal entities that offer limited liability are
Professional corporations (PCs), which are a special type of legal structure that state laws offer to professionals (such as physicians, CPAs, and lawyers) who otherwise would have to operate under the specter of unlimited partnership liability.
Limited liability partnerships (LLPs), which are a legal structure that state laws offer to qualified professionals (such as doctors, lawyers, CPAs, and dentists), in which all the partners have limited liability.
These types of legal entities were created mainly due to very large damage awards in malpractice lawsuits against partners during recent times. The professionals pleaded for protection from the unlimited liability of the partnership form of organization, which they had traditionally used.
Until these new types of professional legal entities came along, the code of professional ethics of the various professions required that practitioners operate as a partnership (or as sole practitioners). Today, most professional associations are organized as PCs or LLPs. They function very much as partnerships do, but without the unlimited liability feature.