In California, the structure and organization of businesses that midwives may use to provide midwifery services are subject to specific legal and regulatory considerations. A midwife must contemplate the most suitable corporate form for tax liability by minimizing both income and self-employment taxes as well as personal liability and personal asset protection concerns such as separating personal and corporate assets and practicing in a business entity that provides limited liability protection to protect personal assets. To undertake their midwifery practice without losing sight of the legally permissible forms of business structures, midwives should seek the advice and counsel of both experienced corporate attorneys and their tax advisors when choosing a business structure for their midwifery practice.

The question of whether rending professional services is permitted through a General Stock Corporation, whether that is a California Corporation or a California S-Corp, is a matter of legal interpretation. This article aims to dissect the legal framework governing the use of General Stock Corporations, such as California Corporations and California S-Corps for midwifery practices in California, analyzing the implications, limitations, and potential benefits of adopting such a structure.

Given the stringent regulations on midwifery services in California, understanding the nuances and requirements is crucial for midwives seeking to incorporate their midwifery practices in California as General Stock Corporations. This article endeavors to provide a clear, informative, and practical answer for midwives considering the use of a General Stock Corporation for their midwifery practice and to inform midwives who might currently be practicing midwifery in a General Stock Corporation their options to get into compliance with the California Corporations Code, the California Business and Professions Code, and the rules and regulations of the Medical Board of California.

Executive Summary: Putting the Conclusion First for Busy Midwives

California midwives may not practice midwifery in California using a General Stock Corporation, and instead must opt for a California Professional Midwifery Corporation.

How to Identify a California General Stock Corporation

A General Stock Corporation may be easily identified by reading the Purpose Statement in the Articles of Incorporation. The Purpose Statement of a California General Stock Corporation will read as follows:

“The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.”

The Purpose Statement of a General Stock Corporation formed in a state other than California will read similarly, although the accepted Purpose Statement wording will vary by state.

How to Identify a California Professional Midwifery Corporation

A California Corporation may be easily identified by reading the Purpose Statement in the Articles of Incorporation. The Purpose Statement of a California Professional Midwifery Corporation will read as follows:

“The purpose of the corporation is to engage in the profession of midwifery and any other lawful activities (other than the banking or trust company business) not prohibited to a corporation engaging in such profession by applicable laws and regulations. This corporation is a professional corporation within the meaning of California Corporations Code section 13400 et. seq.”

Options for Professionals Practicing in a General Stock Corporation

If you are a midwife currently practicing midwifery within a General Stock Corporation, whether formed under California law or the laws of another state, it is imperative to seek informed legal guidance to either form a new California Professional Midwifery Corporation or convert your California General Stock Corporation into a California Professional Midwifery Corporation to ensure compliance with the nuanced requirements set by the California Corporations Code, the California Business and Professions Code, and the rules and regulations of the Medical Board of California.

Contact the experienced attorneys at San Diego Corporate Law today for personalized legal solutions tailored to the unique needs of your midwifery practice. Our team of corporate attorneys is dedicated to helping you seamlessly transition into a compliant corporate structure, safeguarding the future of your midwifery practice and protecting the midwifery license you studied and worked hard to obtain.

What are General Stock Corporations and California Professional Midwifery Corporations?

While similar in structure generally, General Stock Corporations formed under California law or the laws of another state and California Professional Midwifery Corporations differ with respect to their ability to be used for a midwifery practice by a California licensed midwife in California. Understanding the nuances between these corporate structures is essential for midwives intending to establish or continue their practices within the legal frameworks of California or any other state. This section will discuss the attributes of both General Stock Corporations and California Professional Midwifery Corporations.

What is a General Stock Corporation?

A General Stock Corporation is a business entity formed under the laws of the State of California or the laws of other states that can engage in virtually any legal activity, other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code. This type of corporation is recognized broadly across states, allowing for a degree of uniformity in business operations beyond California or the jurisdiction of its formation and generally permitted to file for authority to transact business in other states (commonly referred to a registration of a foreign corporation).

What is a Professional Midwifery Corporation in California?

California Professional Midwifery Corporations are specialized entities formed pursuant to the Moscone-Knox Professional Corporation Act specifically for rendering professional services that require a California license to practice as a midwife. This differentiation ensures that midwives are able to comply with specific legal stipulations governing their practice of midwifery, including liability and practice requirements, thereby protecting both the midwives and the public they serve.

General Stock Corporations versus California Professional Midwifery Corporations

Limitations on the Provision of Professional Services Between General Stock Corporations and California Professional Midwifery Corporations

The primary distinction between a California General Stock Corporation and a California Professional Midwifery Corporation lies in the nature of the services provided. While General Stock Corporations can operate in a wide array of industries and offer virtually any service or product, other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code, California Professional Midwifery Corporations are exclusively established by licensed midwives to render professional services personally or with professional employees to practice midwifery under the California Professional Midwifery Corporation.

Limitations on the Identity of Permitted Shareholders Between General Stock Corporations and California Professional Midwifery Corporations

Another key difference between General Stock Corporations and California Professional Midwifery Corporations is the restriction on the ownership structure of a California Professional Midwifery Corporation. Whereas a General Stock Corporation such as a California Corporation has virtually no restrictions on the identity of shareholders, and a General Stock Corporation recognized by the Internal Revenue Service as an S Corporation like a California S-Corp has some limitations on citizenship and number of permitted shareholders, California Professional Midwifery Corporations have significant restrictions on the identity of shareholders and generally must be owned by licensed midwives or certain other licensed professionals, such as licensed physicians, registered nurses, licensed physician assistants, naturopathic doctors, licensed psychologists, licensed chiropractors, licensed professional clinical counselors, licensed clinical social workers, licensed marriage and family therapists, and physical therapists. For more information about permitted shareholders, read this article about who may be a shareholder of a California Professional Midwifery Corporation.

Limited Liability Protection Differences Between General Stock Corporations and California Professional Midwifery Corporations

Liability is another area where California Professional Midwifery Corporations differ from General Stock Corporations. While shareholders in a General Stock Corporation generally enjoy comprehensive protection from personal liability for the debts, liabilities, obligations, and legal judgments against a General Stock Corporation, professional shareholders and professional employees of a California Professional Midwifery Corporation are personally liable for their own professional malpractice (professional negligence). However, these professional shareholders are shielded from the malpractice liabilities of their associates and the general debts, liabilities, obligations, and legal judgments against a California Professional Midwifery Corporation, which still provides a significant benefit compared to sole proprietorships or partnerships where personal assets of professionals are at risk for all debts, liabilities, obligations, and legal judgments against the midwifery practice.

Taxation Differences Between General Stock Corporations and California Professional Midwifery Corporations

Taxation presents the potential for variance between General Stock Corporations and California Professional Corporations. Both General Stock Corporations and California Professional Midwifery Corporations may elect to be taxed under Subchapter S of the Internal Revenue Code, a specific taxation status potentially offering benefits such as pass-through taxation of income, deductions, and credit through to shareholders to be reported on personal tax returns. However, if not electing to be taxed as an S Corporation, traditionally personal service corporations (sometimes referred to as professional service corporations) such as California Professional Midwifery Corporations not electing S Corporation tax status were taxed at a flat federal rate of 35% in addition to state income taxes. Furthermore, these personal services corporations were subject to the double taxation of traditional C corporations. Under the Tax Cuts and Jobs Act signed by then President Trump in 2018 reduced the federal flat tax from 35% to the standard federal corporate tax rate of 21%, but this tax cut is due to expire at the end of 2025 and return to the 35% federal tax rate unless the Tax Cuts and Jobs Act is extended or new tax laws are adopted.

Summary of General Stock Corporation versus California Professional Midwifery Corporation Differences

In summary, a California Professional Midwifery Corporation serves as a critical vehicle for midwives desiring to practice midwifery within a corporate framework while adhering to the legal requirements and professional standards of the practice of midwifery in California. This structure not only provides a way to manage the business aspects of a midwifery practice, but also offers a layer of protection against certain liabilities and the advantages of corporate tax structures. Understanding these differences is essential for midwives in deciding the appropriate entity structure for their midwifery practice.

How to Identify if Business Entities are General Stock Corporations or California Professional Midwifery Corporations?

Since General Stock Corporations, whether formed under California law or the laws of another state, cannot render professional services in California, it is important for every midwife to identify whether they are practicing midwifery as a California Professional Midwifery Corporation or a General Stock Corporation such as a California Corporation or a California S-Corp.

While the corporate documents of a California Professional Midwifery Corporation, such as the Articles of Incorporation, Bylaws, and Stock Certificates should contain language specific to the practice of midwifery under the California Professional Midwifery Corporation, the easiest way to determine whether a business entity is a General Stock Corporation or a California Professional Midwifery Corporation is to review the Purpose Statement in the Articles of Incorporation of the business structure.

Purpose Statement of a General Stock Corporation

A General Stock Corporation may be easily identified by reading the Purpose Statement in the Articles of Incorporation. The Purpose Statement of a California General Stock Corporation will read as follows:

“The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.”

The Purpose Statement of a General Stock Corporation formed in a state other than California will read similarly, although the accepted Purpose Statement wording will vary by state.

Purpose Statement of a California Professional Midwifery Corporation

A California Corporation may be easily identified by reading the Purpose Statement in the Articles of Incorporation. The Purpose Statement of a California Professional Midwifery Corporation will read as follows:

” The purpose of the corporation is to engage in the profession of midwifery and any other lawful activities (other than the banking or trust company business) not prohibited to a corporation engaging in such profession by applicable laws and regulations. This corporation is a professional corporation within the meaning of California Corporations Code section 13400 et. seq.”

What to Do if Practicing a Profession in a General Stock Corporation?

A midwife practicing midwifery in California using a General Stock Corporation should contact the experienced attorneys at San Diego Corporate Law today for personalized legal solutions tailored to the unique needs of their midwifery practice. Our team of corporate attorneys is dedicated to helping midwives seamlessly transition into a compliant corporate structure, safeguarding the future of their midwifery practice and protecting the midwifery license they studied and worked hard to obtain.

What are the Options for a Midwife Practicing Midwifery in a General Stock Corporation?

In California, midwives who discover they are not incompliance with the California Corporation Code, the California Business and Professions Code, and the rules and regulations of the Medical Board of California because they are practicing midwifery under a General Stock Corporation should cease operating as a General Stock Corporation as soon as possible. These midwives are presented with two viable pathways to align their business structure with California laws and regulations: (1) forming a new California Professional Midwifery Corporation and thereafter dissolving and winding up the General Stock Corporation; or (2) converting their existing General Stock Corporation into a California Professional Midwifery Corporation. This section of the article will explore the considerations involved in each option, providing a clear roadmap for midwives facing the need to navigate this transition.

Forming a New California Professional Midwifery Corporation and Dissolving and Winding Up the General Stock Corporation

Forming a new California Professional Midwifery Corporation as a means to come into compliance with the California laws and regulations for corporate structures permitted to be used for midwifery practices is a viable option for midwives operating their midwifery practice under a General Stock Corporation. This option entails the establishment of a California Professional Midwifery Corporation that adheres to the specifics outlined in the Moscone-Knox Professional Corporation Act, the California Corporations Code, and California Business and Professions Code, thereby enabling the midwife to legally render midwifery services within the State of California.

Forming a California Professional Midwifery Corporation

The initial step in forming a California Professional Midwifery Corporation is drafting and filing Articles of Incorporation specific to midwifery with the California Secretary of State. These Articles of Incorporation should include the required Purpose Statement for a California Professional Midwifery Corporation and should also comply with all pertinent codes and regulations specific to the profession of midwifery. Subsequently, it is essential to adopt corporate Bylaws that govern the internal operations of the California Professional Midwifery Corporation. All of the required language that must be included in the corporate documents of a California Professional Midwifery Corporation should be included in the Articles of Incorporation and the corporate Bylaws. A California Statement of Information, Internal Revenue Service EIN, S Corporation election, California Limited Offering Exemption Notice, and FinCEN Beneficial Ownership Information Report should be filed for the new California Professional Midwifery Corporation, and all other corporate documents should be drafted and adopted.

Dissolving and Winding Up a General Stock Corporation

Upon the successful formation of the California Professional Midwifery Corporation, attention must then turn to the dissolution and winding up of the General Stock Corporation. This process involves settling debts and obligations, distributing any remaining assets, and filing the necessary documentation with the state in which the General Stock Corporation is registered to officially terminate the corporate existence of the General Stock Corporation.

If the General Stock Corporation is a California General Stock Corporation, the experienced attorneys at San Diego Corporate Law can assist in the dissolution and winding up process by drafting the plan of dissolution, shareholder and board of directors approvals, and drafting and filing the Certificate of Election to Wind Up and Dissolve and the Certificate of Election to Wind Up and Dissolve with the California Secretary of State.

If the General Stock Corporation is registered in a state other than California, an attorney licensed to practice in the state where the General Stock Corporation is registered should assist with the dissolution and winding up of the General Stock Corporation.

When is Forming a New California Professional Midwifery Corporation and Dissolving and Winding Up the General Stock Corporation the Best Option?

Transitioning to a California Professional Midwifery Corporation not only assures compliance with California law but also provided the limited liability status for midwife shareholders, which is crucial for protecting their personal assets from business liabilities. Additionally, it aligns the business structure not only with the norms and expectations of a midwifery practice within California, potentially enhancing its legitimacy and reputation among peers and clients, but also complies with the legal requirements for the midwifery practice in California.

Forming a new California Professional Midwifery Corporation and dissolving and winding up the previously used General Stock Corporation is generally the less expensive of the two options, however, if the administrative burden of managing contracts with patients, vendors, business bank accounts, loss of operating history, or insurance coverage or panels to name a few would be less cumbersome with a conversion of the General Stock Corporation into a California Professional Midwifery Corporation, the higher legal fees may justify using the conversion option as opposed to the formation of a new California Professional Midwifery Corporation and the dissolution and winding up of the General Stock Corporation.

Midwives navigating this transition should consult with legal and financial advisors to ensure a seamless and compliant shift from a General Stock Corporation to a California Professional Midwifery Corporation, ultimately ensuring that their midwifery practice stands on solid legal and operational ground.

Converting the Existing General Stock Corporation into a California Professional Midwifery Corporation

The conversion of an existing General Stock Corporation into a California Professional Midwifery Corporation is a structured process that necessitates meticulous planning and strict adherence to California law. This route allows business entities to transition structure without the need to dissolve the original business entity and form a new business entity, thus retaining its existing operational history, relationships, contracts, and potentially Internal Revenue Service EIN if the taxation type of the General Stock Corporation converting is the same as the resulting California Professional Midwifery Corporation.

Converting a California General Stock Corporation into a California Professional Midwifery Corporation

The initial step in converting a California General Stock Corporation into a California Professional Midwifery Corporation is drafting Articles of Incorporation Conversion specific to midwifery with the California Secretary of State. These Articles of Incorporation Conversion should include the required Purpose Statement for a California Professional Midwifery Corporation and should also comply with all pertinent codes and regulations specific to the profession to be practiced. Subsequently, it is essential to adopt new corporate Bylaws that govern the internal operations of the California Professional Midwifery Corporation, as these corporate Bylaws will differ significantly from the corporate Bylaws used by a California General Stock Corporation. All of the required language that must be included in the corporate documents of a California Professional Midwifery Corporation should be included in the Articles of Incorporation Conversion and the corporate Bylaws. A California Statement of Information and FinCEN Beneficial Ownership Information Report should be filed after conversion of a California General Stock Corporation into a California Professional Midwifery Corporation, and all other corporate documents required should be drafted and adopted.

Converting a General Stock Corporation Registered Outside of California into a California Professional Midwifery Corporation

Not all states allow the conversion of business structures registered in their state to other states. However, if permitted, the process of converting a General Stock Corporation registered in a state other than California into a California Professional Midwifery Corporation is similar to converting a California General Stock Corporation into a California General Stock Corporation with the addition of an additional set of filings made with the state in which the General Stock Corporation was registered prior to the conversion into a California Professional Midwifery Corporation to inform that state that the conversion has occurred.

When is Converting a General Stock Corporation into a California Professional Midwifery Corporation the Best Option?

Conversion presents a practical option for midwives seeking to align their corporate structure with the legal regulatory requirements of California laws and regulations without disrupting the continuity of the business operations. Legal and financial advisories play a key role in navigating the conversion process, ensuring that the transition not only complies with California laws and regulations, but also positions the midwifery practice for sustained success and growth within the legal framework of a California Professional Corporation.