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Will Midwives Soon be Able to Form California Professional Midwife Corporations?

California State Senator Jerry Hill has introduced new legislation, SB 798, that would add a licensed midwives corporation to the list of permitted professional corporations in California. The bill would also add licensed midwives to the lists of healing arts practitioners who may be shareholders, officers, directors, or professional employees of certain, non-midwife, professional corporations.

SB 798 is part of a larger effort to enhance patient information concerning doctor and nurse misconduct.

What is a California Professional Corporation?

Corporations specifically for healthcare professionals, healing arts practitioners, and other professionals are allowed under California law pursuant to the Moscone-Knox Professional Corporation Act. The Act authorizes professional corporations to provide professional services within a corporate structure. As with all corporate structures, when you form a professional corporation, the new corporation becomes a legal entity separate and apart from you as an individual. This has significant advantages that are discussed below. Currently, there are 13 healthcare and healing arts professional corporation types:

  • Medical corporations;
  • Podiatric medical corporations;
  • Psychological corporations;
  • Nursing corporations;
  • Speech-language pathology corporations;
  • Audiology corporations;
  • Marriage and family therapist corporations;
  • Clinical social worker corporations;
  • Physician assistant corporations;
  • Optometric corporations;
  • Chiropractic corporations;
  • Acupuncture corporations;
  • Naturopathic doctor corporations;
  • Dental corporations;
  • Professional clinical counselor corporations;
  • Physical therapy corporations; and
  • Registered dental hygienist in alternative practice corporations.

As noted, Senator Hill’s proposed law would create a fourteenth type: the midwife corporation.

The Moscone-Knox Act also specified that certain healing arts practitioners can be shareholders, officers, directors, or professional employees of medical corporations in related fields, subject to certain limitations relating to ownership of shares. As an example, when setting up a medical Corporation, the following people would be eligible shareholders, officer, directors or professional employees:

  • Licensed physicians and surgeons;
  • Psychologists;
  • Registered Nurses;
  • Optometrists;
  • Podiatrists;
  • Chiropractors;
  • Acupuncturists;
  • Naturopathic Doctors;
  • Physical Therapists;
  • Occupational therapists;
  • Physician assistants;
  • Marriage and family therapists;
  • Clinical counselors; and
  • Clinical social workers,

Note that midwives are not currently permitted to be shareholders, officers, or directors in a medical corporation, but that could change if they are added to the list of permitted professional health corporations.

Why Form a Professional Corporation?

If a healing arts practitioner provides services outside of a corporate structure, he or she is acting as a sole proprietor. As such, he or she liable for any of the debts or liabilities involved with the practice.

The main purpose of setting up a corporate entity is to avoid putting your personal assets at risk if there is litigation unrelated to the professional services provided (malpractice claims are personal to the professional and not protected through the use of a professional corporation). Malpractice insurance will cover potential professional liability.

Liabilities not related to professional practice as malpractice, like a slip and fall accident in your office or litigation concerning the firing of an employee, would be limited through the use of a professional corporation. For those types of legal issues, you want only company assets to be at risk. The corporate form shields your personal assets. If you are working with another healing arts practitioner, the corporate form can protect you and the company from malpractice allegedly committed by your fellow healing arts practitioner.

There are tax advantages, too. As with all corporate forms, a professional corporation can opt to be taxed as an S corporation. This “pass-through” taxation avoids double taxation (tax at the corporate and shareholder levels) because profits are “passed-through” to the shareholders. Forming a professional corporation can also help avoid the so-called “self-employment” tax which can be quite important for all professionals.

Other important advantages involve continuity, financing, monetization, and saleability of a professional practice.

Call San Diego Corporate Law Today

If you need legal advice relating to setting up a professional corporation, call experienced business attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2015, 2016 and 2017 by Call Mr. Leonard at (858) 483-9200 or send an email.

We look forward to helping your medical practice succeed.

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