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FAQs Regarding Forming a California Medical Corporation

In California, physicians, nurses, and other healing arts practitioners are permitted to form professional corporations pursuant to the Moscone-Knox Professional Corporation Act (“MKPCA”). See Cal. Corp. Code, §§ 13400 et seq. Other professions, such as lawyers and accountants, can also form professional corporations. Medical and professional corporations are unique under California law and have some unique features. Here are answers to eight of the most popular FAQs that we have received here at San Diego Corporate Law regarding forming professional medical corporations in California.

What is Unique About Medical/Professional Corporations?

The MKPCA limits the types of persons and the number of persons who may be shareholders, directors, and officers of a medical corporation as well as other professional corporations. First, all shareholders must be licensed professionals as specified in the California Corporations Code § 13401.5, and the majority of the shareholders (51%) must be licensed in the area of “healing arts” that the corporation is practicing. That is, a dentistry professional corporation must have at least 51% of its shareholders licensed as dentists.

Second, as noted, the other shareholders must be licensed, but can have their licenses in an allied profession. Thus, for a professional midwife corporation, 51% of the shares must be owned by licensed midwives and the remainder may be owned by long list of allied professionals including physicians, surgeons, licensed psychologists, registered nurses, licensed marriage and family therapists, licensed clinical social workers, and others. See Cal. Corp. Codes, § 13401.5(r). Finally, the MKPCA limits the ratio of shareholders. The Act states that the “number of those licensed persons [in an allied profession] owning shares in the professional corporation so designated herein [cannot] exceed the number of persons licensed by the governmental agency regulating the designated professional corporation.” Thus, a physical therapy corporation with only one physical therapist can have only one other shareholder in an allied field such as a licensed physician and/or surgeon.

What About Directors and Officers of the Medical/Professional Corporation?

In general, the same limitations apply with respect to who may be on the board of directors and an officer of a professional medical corporation, as well as other healing arts professional corporations. The Corporations Code lists these limitations as it does with the limits on shareholders. When consulting with your trusted corporate attorney regarding forming a professional medical corporation, it is important to discuss these options and limitations and how they might affect your specific needs and business plans.

What About Other Employees?

The MKPCA specifically provides that the Act does NOT limit the ability of your San Diego medical corporation to hire other employees who may or may not be licensed in your profession. The Act states: “This section does not limit employment by a professional corporation designated in this section to only those licensed professionals listed under each subdivision.”

Why Form a Medical Corporation (Rather Than a Partnership)?

The main reason for forming a medical or professional corporation is to protect your personal assets from being seized by creditors or by any person winning a malpractice judgment. The corporate entity also protects the assets of your partners. If you form a general partnership, the assets of ALL the partners are potentially at risk if the partnership fails or if there is a malpractice judgment. The MKPCA was intended to allow professionals to avoid this aspect of partnership law.

What is the Process of incorporation?

Medical and professional corporations are formed in the same manner as regular corporations, with a few additional considerations. You must choose a unique name for your corporation that also meets any applicable requirements designated by the California Business and Professions Code specific to your profession. Then file articles of incorporation with the California Secretary of State, adopt bylaws that are compliant with the MKPCA, appoint directors and officers, hold the initial meeting of the board of directors, as well as issue stock and obtain a federal tax ID number. Check with your experienced corporate attorney to see what other formation requirements you may have to ensure your professional medical corporation is formed fully and properly from the beginning.

What Does it Cost?

There are many costs to consider when forming a San Diego professional medical corporation, from legal fees to government and regulatory body filing fees to other miscellaneous items that go along with starting a San Diego business. We here at San Diego Corporate Law want to make sure you understand the value of the work you receive and have the best possible start for your new business. Check out our contact page to get in touch with our office and see how we can help with your professional corporate needs.

Can I be the Sole Owner?

Yes, corporations are often formed and owned by only one professional.

What About Fee Sharing?

As noted above, medical corporations are allowed to hire employees. However, the MKPCA prohibits fee sharing. Thus, profit sharing and other types of structured and/or bonus payments should be carefully reviewed before implementation. For example, if you hire a Director of Marketing who is paid a percentage of new patient billing, such an arrangement might be considered a form of “fee sharing” and may be prohibited. The salary of your new Director of Marketing should be de-linked from patient billing.

Contact San Diego Corporate Law Today

If you need legal advice related to setting up your professional medical corporation, call your trusted business attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2015, 2016 and 2017 by SuperLawyers.com. Contact Mr. Leonard at (858) 483-9200 or by email.