Lawsuit protection with LLCs and FLPs
At the 2022 Atlantic Coast Veterinary Conference, Gary Harker describes these proactive measures for ensuring lawsuit protection
During a Continuing Education peer-to-peer luncheon, sponsored by Legally Mine, at the 2022 Atlantic Coast Veterinary Conference in Atlantic City, New Jersey, Gary Harker, professional speaker for Legally Mine and owner and therapist at Harker We11ness, shared why lawsuit protection and prevention is necessary, plus detailed liability companies (LLCs) and family limited partnership (FLPs) and how they can aid in this.
It is essential to have lawsuit protection because its inevitable that those in in the healthcare realm, including the veterinary busines, will face lawsuits. According to Harker, while the United States consists of about 5% of the world’s population, 90% of lawsuits occur here worldwide.1 Why are there so many lawsuits? Harker shared there are 2 reasons: cause, which consists of accidents you can’t control; and motivation, which is for money, which you must always control. He outlined the below methods to better control the latter and protect your assets.
Limited liability company
An LLC is a business structure that protects its owners from personal responsibilities for its debts or liabilities.2 Harker advised to get multiple LLCs to protect and divide high-risk assets, and this can help minimize risk if 1 business is sued.
“When you create an LLC, there's something called a corporate veil, that's this white box that represents multiple assets, they are enveloped inside of this one entity, or corporate veil. Now, the corporate veil is put in there into place, because if a loss occurs within there, they want to protect your personal investments from that entity,” Harker explained.
This could offer protection, however, if something caused a lawsuit that's inside of the LLC, the attorney can sue you for all of the assets inside of the same entity. That’s why Harker suggests having separate LLCs, such as one for your practice, one for your equipment, one for the rental property, etc. “That way, if there is a lawsuit, it stays within that 1 LLC. You mitigate your damage; you've already lowered the grandeur of the likelihood of you being sued.”
Family limited partnership
An FLP consists of an arrangement that allows family members to pool money to run a business project and they can profit in proportion to the amount of shares they own, as defined in the partnership operating agreement.3 The general partner is only required to own a minimum of 2% of the entity and has 100% control and liability. Meanwhile, limited partners, which you can make family members that you would like to benefit from your money (eg, wife, husband, kids, etc), own a minimum of 98% of the entity and have no control or liability.
“An FLP is between $5,000 and $10,000. [You will] still want one even though it’s expensive. Why? Because it’s going to protect you for a long, long time . . . it’s also going to benefit from taxes.”
Harker noted that in 1974, the Supreme Court ruled 9-0 in favor of limited partners owning 98% of an FLP when the Trial Attorney’s Association tried challenging this, making an FLP an especially protected measure to this day.1
- Harker G. Proper use of legal entities for lawsuit protection & tax reduction. Presented at Atlantic Coast Veterinary Conference; Atlantic City, New Jersey. October 10-12, 2022.
- Fernando J. What is an LLC? Limited liability company structure and benefits defined. Investopedia. Updated July 31, 2022. Accessed October 10, 2022. https://www.investopedia.com/terms/l/llc.asp
- Family limited partnership (FLP). Investopedia. Updated June 15, 2022. Accessed October 10, 2022. https://www.investopedia.com/terms/f/familylimitedpartnership.asp