Legal Question in Business Law in Massachusetts

Re: Professional Corporation

1) MUST you incorporate? No. You have several options for "choice of entity" (as this decisions is called): a) "Schedule C" (just a business you own wholly that you deal with on your form 1040, Schedule C; b) partnership (limited liability partnership, or regular partnership), c) C corp. (standard corporation), d) Professional Corporation, e) Subchapter S corporation.

2) Tax issues: a) deductions are less likely as a practical matter to be questioned when taken by a separate tax-paying entity than in a "Schedule C" business. b) Partnerships, sometimes the LLC, and the Sub. S corp. are "pass-through" entities for tax purposes, which provides two advantages: a) losses can be written off against other personal income (not so where taxes are paid at the corp. level), and b) no double taxation as there would be when you pay taxes at the corp. level and then pay dividends which are taxed on the shareholder level.

3) Liability: Schedule C and general partnerships provide no protection, LLP & LLC provide more but only if set up correctly for that objective, C corp. and S corp. provide the most. Even with the corporate shields to protect you, you'd need certain good business practices (no comingling of assets) to continue to have protection. Depending on the exposure (how much your family already owns and how likely a lawsuit would be), I'd consider "foreign" entities such as a Delaware Corp. or a Delaware LLP. If you have a lot to protect (enough for certain overheads to be amortized), those assets could be put into an Alaska trust, a Missouri self-settled trust, or even various quite off-shore asset protection trusts.

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Re: Professional Corporation

No, you don't need to form any kind of entity in order to establish your practice. Further, contrary to other advice given here, it would not insulate you in any way from professional malpractice claims. You might be able to avoid personal risk for contract claims (such as your office space lease), but most sophisticated commercial parties will insist upon a personal guaranty.

The cheapest structure in Mass is a corporation ($200 filing fee) rather than LLC/LLP ($500, and that assumes that you have more than one professional in your business; else you have to form your LLC/LLP in another state and pay to qualify it in MA as well). If you don't know about the differing tax treatment for corporations under Subchapter "S" or "C" of the Internal Revenue Code, please ask for that guidance.

Aside: great doubt has been cast on the efficacy of off-shore asset protection trusts by a case in the 9th Circuit (Andersen). I have held off forming such trusts until further case law develops. Alaska and Missouri trusts are utterly worthless for asset protection in your situation.