In my previous blog post I wrote about professional corporations and mentioned why certain professionals in California and the Bay Area may want to consider forming them. In this post, I want to discuss medical corporations. Given the current health environment and the general risks associated with the practice of medicine, medical professionals need to know what entity options they have to limit risk when practicing medicine.
Physicians and doctors in California who are looking for liability protection or are interested in tax planning may want to form a corporation. These individuals, however, are not allowed to form a regular, general corporation. Instead, they can form a special type of entity called a professional medical corporation. While a professional medical corporation can still provide the same type of liability protection and potential tax advantages as a regular corporation, professional medical corporations have many restrictions to them that medical professionals need to understand.
A professional medical corporation must not only follow the same rules as regular corporations, but it must also follow all of the rules promulgated by the Medical Board of California.
Below are some of the various restrictions that medical professionals should be aware of when forming a professional medical corporation.
Professional medical corporations have name restrictions. The corporation’s name must include the name or surname of one or more of the present, prospective, or former stockholders of the corporation. A medical corporation can avoid operating under its formal legal name, however, by operating under a fictitious business name. A fictitious name cannot be misleading, deceptive, confusing or similar to a previously issued name. It also needs to be registered properly and documented with the Medical Board. A doctor of podiatric medicine must also include the designation “podiatric,” “podiatry,” “podiatrist,” “foot” or “ankle” in the fictious name.
There are restrictions on who can own stock of the corporation. For example, professional medical corporations require that at least 51% of the shares of the corporation be owned by a licensed physician or surgeon. Certain other medically licensed individuals can own stock of the medical corporation as long as they do not own in the aggregate more than 49% of the corporation.
There are restrictions on who can be an officer or director of the corporation. Generally speaking, each officer and director of a medical corporation must be a “licensed person” as defined in the corporations code. However, there are certain exceptions to this rule, including allowing non-licensed individuals to hold the titles of Chief Executive Officer and Executive Vice President.
The law further restricts the professionals with whom a California physician or doctor can partner. It also restricts certain actions which may be available to shareholders in a general corporation. For example, there are various restrictions related to the buying and selling of shares.
If you choose to move forward with forming a professional medical corporation, be careful in how it is formed. If not properly formed, issues may arise which can be difficult and expensive to fix.
This blog is written as of July 09, 2020. Recommendations and legal requirements are changing rapidly, so please continue to review our legal updates or review postings on relevant government websites.
All blogs on this site are for educational purposes only, do not constitute legal advice or opinion, and should not be applied to your situation, or any specific situation, without consultation with counsel. Strategy Law, LLP does not provide any legal advice concerning any matter discussed in a blog except upon formal engagement including, without limitation, execution of Strategy Law, LLP’s formal legal services agreement, and with respect to specific factual situations. No blog constitutes a guaranty, warranty, or prediction regarding the result of any legal matter discussed in the blog or any representation.
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