Do I Need a PLLC in New York If I Have Malpractice Insurance?

Licensed professionals in New York often ask a reasonable question when starting a private practice or firm: “If I already have malpractice insurance, do I really need a PLLC?” It’s an understandable assumption, but it’s also one that frequently leads professionals to underestimate their exposure to risk when looking to start their practice/firm. Malpractice insurance and corporate entities, like PLLCs, serve different (but complementary) purposes, and one does not replace the other. Understanding the distinction is critical to protecting both your professional practice and your personal assets.

What a PLLC Protects You From in New York

A Professional Service Limited Liability Company (PLLC) is a common, and often preferred, business structure for many licensed professionals, including attorneys, CPAs, Nurse Practitioners, Doctors, and Licensed Clinical Social Workers, etc. While a PLLC does not eliminate all personal liability, it plays an important role in separating your personal assets and finances from the ordinary risks of running a business.

When properly formed and maintained, a PLLC generally shields you from liability arising out of the business side of your practice. This includes claims, disputes, etc. related to:

Business loans (so long as there is not a personal guarantee);
Office leases (so long as there is not a personal guarantee) and equipment leases;
Vendor contracts,
Federal payroll tax or other business tax liabilities (e.g., sales tax) (unless failure to collect/pay was willful),
Breach of employment agreement claims tied to non-wage related issues;
Many types of lawsuits that have nothing to do with professional malpractice, e.g., breach of contract, trademark disputes, etc.

If your practice is sued over a commercial dispute or certain employee issues (e.g., disputes over paid time off, bonuses, commissions), the PLLC structure helps prevent those claims from automatically allowing the claimant to come after your personal assets and finances.

What a PLLC Does Not Protect You From

New York law is very clear on one point: a PLLC does not protect a licensed professional from liability for their own malpractice. If you personally commit professional negligence, you remain personally responsible for that conduct regardless of the entity you operate through. This is not a loophole or oversight, but it is a deliberate policy choice. The PLLC is designed to limit business liability, not professional accountability. That distinction is precisely why malpractice insurance exists.

It is important to note just some of the claims, disputes, or issues that a PLLC does not protect its owner from:

Wage and Hour claims under the New York Labor Law or Fair Labor Standards Act;

Including: unpaid wages, overtime violations, minimum wage violations, spread-of-hours pay and wage notice and wage statement violations

Discrimination, harassment, or retaliation claims involving personal conduct or supervision;
Failure to maintain required employment insurances, e.g., worker’s compensation and disability insurance; and
Intentional conduct committed by the owner, e.g., assault, defamation, coercion, fraud, etc. in the employment context.

What Malpractice Insurance Actually Covers

Malpractice insurance is focused narrowly on claims arising from professional services. It typically covers allegations that you failed to meet the applicable standard of care, made errors or omissions, or otherwise caused harm through your licensed work. These policies generally provide both a legal defense and financial coverage for settlements or judgments related to malpractice claims.

What malpractice insurance does not cover are the everyday operational risks of running a practice. Disputes with landlords, employment claims, contractual disagreements, and most regulatory penalties fall outside the scope of malpractice coverage.

Why Malpractice Insurance Does Not Replace a PLLC

The key takeaway is that malpractice insurance and a PLLC address different categories of risk. Malpractice insurance protects your professional conduct. A PLLC protects you from business-related exposure. One does not substitute for the other. In New York, operating without a PLLC, even if you are fully insured, means your personal assets and finances may still be reachable for non-malpractice related business claims. That risk is often overlooked until something goes wrong.

Is a PLLC Required in New York?

As a licensed professional in New York State, you can certainly operate your practice/firm as a sole-proprietor; however, as discussed above, without a corporate entity, like a PLLC, sole-proprietors are exposed to unlimited personal liability for business related debts/claims. In New York, if you are interested in the limited liability protections that come with corporate entities, you must register as a PLLC or PC. Unfortunately, regular LLCs and corporations are not permitted for private practices/firms.

If you are a licensed professional practicing in New York, malpractice insurance is necessary — but it is not typically enough on its own. A PLLC provides essential protection against business-related risks that insurance does not address. Used together, they form a more complete legal and financial foundation for your practice.

Need Help with Setting Up Your Private Practice/Firm?

At Carbone Law, we are experienced in assisting licensed professionals with setting up and maintaining their private practices/firms. If you are interested in setting up a PLLC or seeking advice on the corporate upkeep of your practice, please do not hesitate to give us a call at (212) 547-8857 or schedule a consultation online and we'd be happy to work with you. Our experienced business attorney is here to provide the advice you need. Contact us today to help ensure that your practice is in compliance with New York law!

Disclaimer: This blog post and similar posts are not to be considered as providing legal advice. The discussion here is meant for educational and informational purposes only and shall not create an attorney-client relationship with the readers of this content.