Should I Form a Professional Corporation for my Medical Practice?
California Business and Professions Code Section 2052 provides “[a]ny person who practices or attempts to practice, or who holds himself or herself out as practicing…[medicine] without having at the time of so doing a valid, unrevoked, or unsuspended certificate…is guilty of a public offense.” California Business and Professions Code Section 2400 further provides “[c]orporations and other artificial legal entities shall have no professional rights, privileges, or powers.” According to the Medical Board of California, these laws are intended to prevent unlicensed individuals from “interfering with or influencing the physician’s professional judgment.” See Corporate Practice of Medicine, Medical Board of California. Reading these two sections together with the information on the Medical Board of California’s website, one might come to the conclusion that doctors cannot under any circumstances, form a corporation through which they may practice their profession. That conclusion, however, would be contrary to California law.
Generally, pursuant to California Corporation Code Sections 13400 through 13410, doctors, as well as lawyers and other professionals, are permitted to form professional corporations for the purpose of running their businesses. These corporations are not, however, formed under the laws generally applicable to other corporations. Doctors may form a professional corporation provided, among other things, that (1) all owners of the shares of stock of the corporation are licensed to practice in one of the professions listed in California Corporations Code Section 13401.5(a)(1)-(12); (2) no shareholder may enter into any voting trust, proxy or other agreement with a person not described in Section 13401.5(a)(1)-(12); (3) the professional’s shares can only be transferred to another person licensed in one of the professions enumerated in Section 13401.5(a)(1)-(12); and (4) if one of the shareholders becomes disqualified to practice or is deceased, that shareholder’s shares must be reacquired by the corporation or another person enumerated in the statute.
To form a medical corporation, the incorporator first obtains a Fictitious Name Permit from the Medical Board of California. Next, the incorporator files the corporation’s Articles of Incorporation with the California Secretary of State, which must contain a statement that the corporation is being incorporated as a professional corporation pursuant to California Corporations Code Section 13404. The corporation then generally follows the same path to formation that any other corporation would follow, including the preparation of the corporation’s bylaws, issuance of the stock of the corporation and entering into appropriate shareholder agreements.
The advantages of forming the professional corporation are much the same for the formation of any corporation. Among the advantages is that by forming the corporation, the medical professional’s personal assets are insulated from the claims of the corporation’s creditors as well as the negligent acts of the other shareholder-employees in their practice. For instance, assume A and B form a professional medical corporation. In the course of A’s medical practice, A commits some negligent act causing injury to one of A’s patients. B’s personal assets (but not necessarily the corporation’s assets) are generally immune from A’s medical negligence. That is not to say, however, that the corporation will immunize B’s assets for B’s own professional negligence. As a general rule, professionals who commit professional negligence are held responsible, both professionally and personally, for that conduct. Of course, to ensure that one’s medical corporation acts as it is intended, one must ensure that the normal corporate formalities applicable to professional corporations are followed.
If you are contemplating forming a professional medical corporation, you must understand the laws applicable to professional corporations. Michael Leonard, Esq. of San Diego Corporate Law is someone you can trust and who has that knowledge and experience to assist you with understanding those laws and determining whether a professional medical corporation is right for you. To schedule a consultation with Mr. Leonard to discuss your incorporation needs, or any other business-related matter, you can visit San Diego Corporate Law or call (858) 483-9200.