How to Form a California Optometry / Ophthalmic Professional Corporation: The Complete Guide
If you’re an optometrist or ophthalmologist planning to establish your own practice in California, you need to understand something fundamental from the outset: you cannot practice clinical optometry or ophthalmology through a standard Limited Liability Company. California law explicitly prohibits licensed optometrists and physicians from providing professional services through general corporations or LLCs. This isn’t a technicality or an obscure regulation—it’s a hard prohibition rooted in Business & Professions Code §3040 (for optometry) and §2400 (for medicine, including ophthalmology).
Your clinical practice must operate as either a sole proprietorship, partnership, or professional corporation. For most practitioners seeking liability protection and tax advantages, the professional corporation is the only viable entity structure. But California’s optometry and ophthalmology professional corporation framework is notably more complex than structures for other professions. The interplay between corporate practice restrictions, optical retailer relationships, cross-ownership between optometrists and ophthalmologists, and fee-splitting prohibitions creates a regulatory landscape that trips up even experienced practitioners.
This guide walks you through the entire process of forming an optometry or ophthalmic professional corporation in California, from strategic pre-formation decisions through Secretary of State filing, optical retailer compliance, and ongoing regulatory obligations. Whether you’re a solo optometrist, an ophthalmologist opening an integrated ophthalmology-optometry clinic, or a group practice navigating OD/MD co-ownership structures, you’ll find the specific statutory requirements and practical guidance you need.
This guide provides general legal information about forming California professional corporations for optometry and ophthalmology practices and is current as of publication date. Laws, regulations, board requirements, and fees change periodically. This information should not be construed as legal or tax advice for your specific situation. Consult with a qualified attorney and tax professional regarding your particular circumstances before making formation decisions. <!– Calendly inline widget begin –> <div class=”calendly-inline-widget” data-url=”https://calendly.com/sergei-tokmakov/30-minute-zoom-meeting?hide_gdpr_banner=1″ style=”min-width:320px;height:700px;”></div> <script type=”text/javascript” src=”https://assets.calendly.com/assets/external/widget.js” async></script> <!– Calendly inline widget end –>
Why You Cannot Use an LLC for Clinical Practice
California’s prohibition on LLC formation for optometry and ophthalmology practice stems from the corporate practice doctrine codified in the Business & Professions Code. Business & Professions Code §3040 establishes that corporations and other artificial entities generally cannot practice optometry or have a proprietary interest in an optometry practice, with narrow statutory exceptions. Similarly, §2400 prohibits corporations from practicing medicine (which includes ophthalmology) except through specifically authorized professional corporation structures. The Moscone-Knox Professional Corporation Act (Corporations Code §§13400-13410) creates the statutory exception allowing licensed professionals to practice through corporations. This framework ensures that licensed professionals—not business investors, management companies, or lay owners—control clinical decision-making and maintain accountability to their respective licensing boards. For optometrists, the authorization for corporate practice comes from Business & Professions Code §3160, which applies Moscone-Knox to optometric corporations and gives the Board of Optometry express regulatory authority over corporate structure, names, and stock ownership. For ophthalmologists and other physicians, medical professional corporations operate under the same Moscone-Knox framework but fall under Medical Board of California oversight. None of these statutes authorize LLC formation for clinical practice. The LLC Act itself doesn’t provide an exemption for professional services, and both the Board of Optometry and Medical Board have consistently taken the position that clinical services must be provided through professional corporations if practitioners want entity-level liability protection. This creates a clear choice: if you want the liability separation and tax benefits of an entity structure for your clinical practice, you must form a professional corporation and comply with all associated requirements. Sole proprietorships and partnerships remain options, but they don’t provide the same protections or planning opportunities.Optometric Corporations vs Medical Corporations: Understanding the Distinction
California law doesn’t create a single “eye care professional corporation” that can house both optometrists and ophthalmologists indiscriminately. Instead, the Moscone-Knox Act establishes two distinct professional corporation types, each governed by different statutory provisions and supervised by different regulatory boards.Optometric Professional Corporations (Business & Professions Code §§3160-3164)
Optometric professional corporations are entities formed under Moscone-Knox specifically to provide optometric services. Business & Professions Code §3160 brings optometric corporations under the Moscone-Knox framework and references Corporations Code §§13401 and 13401.5 for ownership and governance requirements. The Board of Optometry has express regulatory authority over optometric corporations and has adopted detailed regulations governing corporate names, stock ownership, and practice structure. An optometric corporation provides services within the scope of optometry practice as defined by California law: comprehensive vision care including eye examinations, diagnosis and treatment of vision conditions, prescribing corrective lenses, detecting eye diseases, and providing pre- and post-operative care related to refractive surgery. Optometric corporations are subject to Board of Optometry oversight, must comply with optometry-specific regulations, and face discipline through optometry licensure proceedings.Medical Professional Corporations for Ophthalmology (Business & Professions Code §2400)
Ophthalmologists are physicians licensed to practice medicine and surgery with specialization in diseases and surgery of the eye. When an ophthalmologist forms a professional corporation, that entity is a medical professional corporation under Moscone-Knox, not an optometric corporation. Medical corporations fall under Medical Board of California jurisdiction and must comply with the corporate practice of medicine doctrine and medical board regulations. A medical corporation providing ophthalmology services can perform comprehensive medical and surgical eye care including cataract surgery, glaucoma treatment, retinal surgery, oculoplastic procedures, and medical management of eye diseases. Medical corporations follow medical board requirements for corporate structure, naming, and ownership, and are subject to medical board discipline.Why the Distinction Matters
The distinction between optometric and medical corporations becomes critical in three scenarios. First, if you’re an ophthalmologist, you must form a medical corporation, not an optometric corporation, even though your work focuses on eyes. Second, if you want to create an integrated practice with both optometrists and ophthalmologists, you need to understand the cross-ownership rules and decide whether to form a single corporation with mixed ownership or separate corporations for each profession. Third, compliance obligations, regulatory oversight, naming requirements, and discipline procedures all differ based on which corporation type you form. Most importantly, each corporation type must maintain at least 51% ownership by licensees in its primary profession. An optometric corporation must be at least 51% owned by optometrists. A medical corporation must be at least 51% owned by physicians. This “51/49 rule” is the foundation of professional corporation ownership in California.The 51/49 Ownership Rule and Cross-Professional Shareholding
Corporations Code §13401.5 establishes the ownership framework for all California professional corporations. At least 51% of the outstanding shares and voting power must be held by licensees in the corporation’s primary profession. For an optometric corporation, optometrists must own at least 51%. For a medical corporation, physicians must own at least 51%. The remaining 49% may be owned by certain other specified licensed professionals enumerated in §13401.5. These enumerated licensees vary by profession but generally include other healing arts professionals. For optometric corporations, the statute permits minority ownership by physicians, psychologists, registered nurses, marriage and family therapists, clinical social workers, professional clinical counselors, and certain other healthcare licensees. For medical corporations, the statute permits minority ownership by optometrists, psychologists, physician assistants, nurse practitioners, podiatrists, chiropractors, and other enumerated healthcare professionals. This cross-ownership framework enables integrated practices. An ophthalmology practice structured as a medical corporation with 60% physician ownership could have 20% owned by an optometrist, 10% by a physician assistant, and 10% by a nurse practitioner—creating an integrated eye care clinic under single corporate ownership. Each professional practices within their own scope of practice, but the unified entity shares administrative infrastructure, office space, equipment, and marketing. The ownership restrictions extend to board composition. The number of directors who are licensees of “other” professions cannot exceed the same proportion as their share ownership. If physicians own 60% of a medical corporation, at least 60% of the board must be physicians. If optometrists own 75% of an optometric corporation, at least 75% of the board must be optometrists. One critical restriction applies across all professional corporations: non-licensed individuals cannot own shares except in extremely limited circumstances. When a shareholder dies or becomes disabled, their personal representative or trust may hold shares temporarily, but only for the period necessary to transfer those shares to qualified licensees or redeem them. You cannot give equity to your office manager, marketing consultant, optical lab, or outside investors. Every shareholder must hold an active professional license in an enumerated healing arts profession.The 16 CCR §1548 Tension
California Code of Regulations Title 16, §1548 creates an apparent conflict with the statutory cross-ownership scheme. The regulation states that shares of an optometric corporation may be issued only to licensed optometrists or to the corporation itself. This text, read literally, would prohibit the cross-professional ownership that Corporations Code §13401.5 explicitly authorizes. This regulatory language has not been updated to conform to the statutory framework, and the statute controls. Corporations Code §13401.5 is the governing law for professional corporation ownership. The Board of Optometry regulation predates the current statutory scheme and should be read as superseded by the more specific legislative authorization for cross-ownership. When forming an optometric corporation with physician minority shareholders or a medical corporation with optometrist minority shareholders, rely on the statutory authorization in §13401.5.Single Corporation vs Dual-Entity Structure: Strategic Considerations
When establishing an integrated optometry-ophthalmology practice, you face a fundamental structural choice: form a single professional corporation with mixed OD/MD ownership, or create separate optometric and medical corporations with a management services organization providing shared administrative support.Single Corporation Structure
A single professional corporation works when one profession clearly predominates. If you’re opening an ophthalmology practice and want to employ or partner with optometrists for pre-operative evaluation and post-operative care, form a medical corporation with physicians owning at least 51%. The optometrists can own up to 49% of shares collectively and practice within their optometry scope while the ophthalmologists handle surgical cases. Conversely, if you’re opening an optometry-focused practice and want to have ophthalmology consultation available for complex cases, form an optometric corporation with optometrists owning at least 51%. The ophthalmologist partner can own up to 49% and handle surgical referrals, complex medical cases, and pre/post-operative management. The advantages of single-corporation structure include simplified administration (one entity, one tax return, one compliance calendar), unified liability insurance, straightforward profit distribution, and consolidated financial statements. The disadvantages include regulatory complexity ensuring each professional practices only within their scope, potential conflicts when one profession generates significantly more revenue but owns less than 51%, and complications if the minority profession later wants to expand beyond the 49% cap.Dual-Entity Structure with MSO
Some integrated practices use a two-corporation model: separate optometric and medical professional corporations, each owned 100% by the appropriate licensees, with a management services organization (MSO) providing administrative support to both. The MSO is typically structured as a standard LLC or corporation owned by the same practitioners. The optometric corporation employs optometrists and provides optometry services. The medical corporation employs ophthalmologists and provides ophthalmology services. The MSO provides non-clinical support including billing, scheduling, HR, marketing, facility management, and equipment leasing. Each professional corporation pays the MSO a management fee for these services. The advantages of dual-entity structure include clearer scope-of-practice separation, more flexibility for future expansion or sale of one practice without affecting the other, and better insulation from corporate practice violations if structured carefully. The disadvantages include increased administrative burden (two professional corporations, two tax returns, multiple compliance calendars), higher setup costs, complexity in allocating shared expenses, and risk of corporate practice violations if the MSO exercises too much control over clinical decisions.Management Services Organization Compliance
If you choose the dual-entity structure, the MSO must be carefully structured to avoid corporate practice violations. Under both the corporate practice of medicine doctrine and corporate practice of optometry restrictions, a lay-owned entity cannot control clinical decision-making, set professional fees, direct patient flow, or interfere with professional judgment. Your MSO agreement must clearly delineate that clinical decisions, professional fee setting, patient acceptance and dismissal, clinical staffing, and treatment protocols remain exclusively under the control of the professional corporations and their licensed practitioners. The MSO provides only administrative services: billing and collections, general marketing, facility management, non-clinical HR, and equipment leasing. Management fees must be reasonable and based on actual services provided, not a percentage of professional fees or volume of patients. The Medical Board and Board of Optometry both have authority to discipline practitioners and professional corporations that allow lay control over clinical practice, even through ostensibly arm’s-length management agreements. If your MSO crosses into clinical territory, you’ve created a corporate practice violation that can result in professional discipline, civil penalties, and invalidation of the corporate structure’s liability protections.Optical Retailer Relationships: The Compliance Minefield
One of the most complex aspects of optometry practice in California is navigating relationships with optical retailers, dispensing opticians, and commercial optical chains. Multiple overlapping statutory provisions create strict prohibitions on financial relationships between professional practitioners and optical businesses.The Core Prohibitions: Business & Professions Code §655
Business & Professions Code §655 makes it unlawful for any optometrist or physician to own or have a proprietary interest in a registered dispensing optician business or optical company, and prohibits optometrists and physicians from sharing in the profits of optical businesses. The statute similarly prohibits dispensing opticians and optical companies from owning interests in professional practices or sharing in professional fees. This creates a bright-line rule: you cannot vertically integrate your optometry practice with an optical retail operation through ownership. You cannot own both the professional practice and the optical shop. You cannot have a partnership interest in an optical company. You cannot receive a percentage of optical sales revenue. The prohibition is absolute subject only to very narrow statutory exceptions.Restrictions on Optical Chain Control: Business & Professions Code §§2556-2556.1
Business & Professions Code §2556 prohibits optical businesses and registered dispensing opticians from directing, controlling, or interfering with the professional judgment of optometrists. Section 2556.1 gives the Department of Consumer Affairs and Board of Optometry authority to regulate optical chains, co-location arrangements, and commercial relationships that might compromise professional independence. These provisions implement the corporate practice of optometry doctrine by preventing optical retail businesses from controlling optometric practices. An optical chain cannot employ you directly as an optometrist (you must be employed by a professional corporation or practice as an independent contractor). The optical business cannot set your professional fees, control your examination procedures, direct how you write prescriptions, or interfere with your clinical decision-making.Leasing Space from Optical Retailers: 16 CCR §1514
If you want to practice optometry in space leased from a commercial optical retailer—a common arrangement in shopping centers, big-box stores, and optical chains—you must comply with California Code of Regulations Title 16, §1514. This regulation establishes detailed conditions for practicing in a mercantile location while maintaining professional independence. Physical and operational separation is required. Your professional practice space must be clearly distinguished from the retail optical business. Where feasible, you need separate entrances. Signage must clearly identify your practice as independent professional services, not part of the retail store. Your waiting area should be separated from the retail space to the extent practical. You must maintain exclusive control over clinical matters. This includes staff performing professional services (optometric technicians, assistants performing clinical tasks), clinical records and patient files, examination equipment and instruments, professional fee schedules, hours of professional practice, and patient scheduling for professional services. The retail optical business cannot control any of these aspects. Financial independence is critical. Your lease rent must be fixed—a flat monthly or annual amount unrelated to your gross receipts, number of examinations, prescriptions written, or eyewear sold by the retailer. You cannot receive bonuses, rebates, or any compensation based on volume of prescriptions or optical sales. The retailer cannot offer you reduced rent in exchange for generating more business for their retail operation. Advertising and professional representation must maintain clear boundaries. The retailer cannot advertise that it “employs” you or represent that you’re part of the retail business. Marketing materials must identify you as an independent professional practitioner. Any advertising by the retailer mentioning professional services available must make clear that the optometry practice is separate and independent. These conditions aren’t optional or best practices—they’re regulatory requirements. Violations can result in Board of Optometry discipline against your professional license, civil enforcement actions, and invalidation of the lease arrangement. If you’re considering leasing space in a retail optical location, have the lease agreement and operational procedures reviewed by an attorney familiar with California optometry regulations before signing.Fee-Splitting and Anti-Kickback Prohibitions
Beyond the optical retailer restrictions, California law imposes strict prohibitions on fee-splitting and referral compensation that apply across healthcare professions.General Anti-Kickback: Business & Professions Code §650
Business & Professions Code §650 prohibits any licensee from offering, giving, receiving, or accepting any consideration as compensation or inducement for patient referrals. This applies to all healthcare licensees including optometrists and physicians. The prohibition covers cash payments, gifts, percentage-of-fees arrangements, rebates, credits, discounts, or any thing of value paid for sending or receiving patients. The statute is broadly written. You cannot pay a referral fee to another practitioner for sending you patients. You cannot accept payments from a LASIK center for referring refractive surgery candidates. You cannot enter into marketing arrangements where your compensation is tied to the volume or value of referrals you generate. Violations are grounds for professional discipline and can be prosecuted as misdemeanors.Optometry-Specific Restrictions: Business & Professions Code §655
Section 655’s prohibition on profit-sharing between optometrists/physicians and optical businesses operates as a specialized anti-kickback rule for the optical retail context. You cannot structure arrangements where the optical business pays you a percentage of sales generated from your prescriptions, even if characterized as “marketing fees,” “consultation fees,” or other creative labels. Similarly, you cannot pay the optical business a percentage of your professional fees for patient referrals, space rental, or any other consideration tied to volume or value of services. Any financial arrangement must be based on fair market value for actual services or space provided, not on patient flow or revenue generation.Referral Relationships Between Optometrists and Ophthalmologists
The anti-kickback statutes apply to OD-MD referral relationships. If your optometry practice co-locates with an ophthalmology practice (whether in a single professional corporation or dual-entity structure), the referral relationship must be based solely on appropriate clinical indications, not financial incentives. You cannot structure compensation arrangements where the optometrist receives higher distributions when they refer more patients to the ophthalmologist for surgery. You cannot pay the optometrist a per-patient fee for pre-operative evaluation referrals. The professional services must be valued and compensated independently of whether referrals flow between the practitioners. In a single professional corporation structure, this usually means salary and profit distributions are based on each professional’s individual productivity and the practice’s overall profitability, not on referral volume. In a dual-entity structure with an MSO, management fees must be based on actual services provided, not tied to inter-practice referrals.Formation Process with the Secretary of State
Once you’ve made strategic decisions about entity structure and ownership, the formation mechanics begin with filing Articles of Incorporation with the California Secretary of State.Choosing Your Corporate Name
Your corporate name must comply with both general California corporate naming requirements and profession-specific board rules. Under California Code of Regulations Title 16, §1546, corporate and fictitious names used in optometric practice must comply with Board of Optometry requirements and cannot be false, misleading, or deceptive. For optometric corporations, include terms clearly identifying the practice as optometry: “optometry,” “optometric,” “vision,” “eye care,” or similar professional identifiers. Include a corporate designator: “Professional Corporation,” “A Professional Corporation,” “PC,” “APC,” “Incorporated,” “Inc.,” “Corporation,” or “Corp.” For medical corporations providing ophthalmology services, follow Medical Board naming guidance. The corporate name should identify the medical nature of the practice. Common approaches include “Ophthalmology Medical Group,” “Eye Surgery Center,” or physician names followed by “MD, Inc.” Include a corporate designator. Search the California Secretary of State’s business database at bizfileonline.sos.ca.gov before finalizing your name choice. Your name must be distinguishable from existing business entities. Avoid names that might be confusingly similar to established practices or that imply credentials, specializations, or affiliations you don’t actually hold. If you plan to practice under a fictitious name (DBA) different from your registered corporate name, that fictitious name must also comply with board requirements. For medical corporations, you’ll need to file a Fictitious Name Permit application with the Medical Board.Preparing Articles of Incorporation
File Form ARTS-PC (Articles of Incorporation of a Professional Corporation) with the California Secretary of State. The filing fee is $100. If you submit in person at the Sacramento office, add a $15 counter drop-off fee. Your Articles must specifically indicate that you’re forming a professional corporation to practice your particular profession. Include a clear corporate purpose clause: For optometric corporations: “The specific purpose of this corporation is to engage in the practice of optometry in the State of California pursuant to Business and Professions Code Section 3160 and to exercise all rights and powers conferred on professional corporations under the Moscone-Knox Professional Corporation Act.” For medical corporations (ophthalmology): “The specific purpose of this corporation is to engage in the practice of medicine and surgery in the State of California and to exercise all rights and powers conferred on professional corporations under the Moscone-Knox Professional Corporation Act.” Your Articles must indicate that shares will be issued only to persons licensed to practice the profession (or enumerated other healing arts professions permitted under Corporations Code §13401.5). Include language such as: “The shares of this corporation shall be issued only to persons who are licensed to practice optometry/medicine and surgery in the State of California, or to other licensed persons as permitted by Corporations Code Section 13401.5.” Specify your authorized share structure. You can authorize par value or no-par value shares. Common structures include 10,000 authorized shares with no par value, allowing flexibility in issuance. If you’re forming with multiple shareholders, decide now how many shares will be issued and at what price to establish initial capital contributions and ownership percentages. Designate your agent for service of process. This can be an individual California resident or a corporate agent registered with the Secretary of State. The agent’s address must be a physical California address, not a P.O. box.Filing and Processing
File through the Secretary of State’s BizFile Online portal for fastest processing. Standard mail-in processing typically takes five business days, though this fluctuates with volume. Check current processing times at sos.ca.gov/business-programs/business-entities/processing-times. For faster turnaround, expedited services are available: 24-hour processing costs an additional $500 beyond the base filing fee, while same-day 4-hour service costs $750. Once the Secretary of State approves your Articles, you’ll receive a file-stamped copy and your corporation officially exists. You can then move forward with obtaining your federal EIN, drafting bylaws, holding your organizational meeting, and beginning operations.Post-Formation Steps and Ongoing Compliance
Federal Employer Identification Number
Apply for an Employer Identification Number (EIN) from the IRS immediately after Secretary of State approval. Apply online at irs.gov through the EIN Assistant. The application is free and you’ll receive your EIN immediately upon completion. You need your corporation’s exact legal name as shown on the filed Articles, your California business address, and your personal Social Security Number as the responsible party. The EIN is required for opening business bank accounts, filing employment and income tax returns, and establishing your corporation as a separate entity for tax purposes. Don’t delay this step—you cannot properly separate personal and corporate finances without it.Corporate Bylaws with Required Provisions
Draft corporate bylaws governing internal operations. Moscone-Knox mandates certain share transfer restrictions that must be implemented in your bylaws. Corporations Code §13406 requires that shares in a professional corporation can only be transferred to individuals licensed to practice the profession (or enumerated other healing arts professionals), to the corporation itself, or to shareholders who already own shares in the corporation. Section 13407 requires that share certificates contain conspicuous legends noting these restrictions. A typical legend reads: “The shares represented by this certificate are subject to transfer restrictions. These shares may be transferred only to persons licensed to practice optometry/medicine and surgery in the State of California, or to persons holding other healing arts licenses as specified in Corporations Code Section 13401.5, to existing shareholders of this corporation, or to the corporation itself. Transfer to any other person is void.” Your bylaws should address what happens when a shareholder loses their license through suspension, disbarment, retirement, or death. Include procedures for mandatory redemption, share valuation methodology (book value, formula-based, or third-party appraisal), payment terms for redemptions, and dispute resolution mechanisms. For optometric corporations, reference Business & Professions Code §§3160-3164 and ensure compliance with Board of Optometry oversight. For medical corporations, reference §2400 and Medical Board authority. If you’re forming a multi-professional practice with cross-licensed shareholders, your bylaws must clearly establish that each professional practices only within their own scope of practice and that the primary profession maintains at least 51% ownership and voting control at all times.Organizational Meeting and Share Issuance
Hold your organizational meeting of the board of directors. At this meeting you’ll adopt the corporate bylaws, elect officers (president, secretary, treasurer, and any vice-presidents), authorize the issuance of shares to initial shareholders, designate the corporation’s principal office address, authorize opening of corporate bank accounts, and appoint the registered agent for service of process. Document everything in formal minutes. Issue share certificates to all shareholders in accordance with the bylaws and organizational meeting resolutions. Each certificate must contain the transfer restriction legend required by Corporations Code §13407. Maintain a stock ledger in your corporate records book showing all share issuances, the name of each shareholder, their professional license type and number, number of shares held, dates of issuance, and certificate numbers. The stock ledger is critical for demonstrating compliance with the 51/49 ownership rule and for documenting that all shareholders hold active licenses in permitted professions. Update the ledger whenever shares are transferred, redeemed, or reissued, and whenever a shareholder’s license status changes.Statement of Information
Within 90 days of filing your Articles of Incorporation, file a Statement of Information with the California Secretary of State. The filing fee is $25. Corporations must file annually (unlike LLCs which file biennially). The Statement of Information provides the Secretary of State with current information about your corporation’s officers, directors, registered agent, and principal business address. File online through BizFile or by mail. Mark your calendar for annual Statement of Information filings—missing this filing results in penalties and eventual suspension of your corporate powers.Board Registration Requirements
Board of Optometry and Medical Board requirements for corporate registration vary. Check current requirements with your licensing board. Historically, certain professional boards maintained corporate registration systems separate from Secretary of State filings. Compliance is enforced through individual license discipline and investigation of corporate structure violations. All shareholders who will be practicing through the corporation must maintain active individual licenses. Your corporation cannot practice on behalf of suspended or unlicensed individuals, and violations can result in discipline of both the corporation and the individual licensees involved. If your medical corporation will practice under a fictitious name, file a Fictitious Name Permit application (Form FNP-001) with the Medical Board. The permit authorizes practice under a name different from the registered corporate name and must be renewed periodically.Tax Elections and Obligations
Most optometry and ophthalmology professional corporations elect S-Corporation tax treatment for both federal and California purposes. File IRS Form 2553 (Election by a Small Business Corporation) within 75 days of your incorporation date, or within 75 days of the start of the tax year in which you want the election to take effect. S-Corporation taxation allows profits to pass through to shareholders without entity-level federal income tax, avoiding double taxation. More importantly, S-Corporation status enables the salary-versus-distribution tax strategy that reduces self-employment tax exposure. You pay yourself a reasonable salary as an employee of the corporation subject to all standard payroll taxes, but additional profits you distribute to yourself as a shareholder aren’t subject to self-employment tax. California recognizes federal S-elections but imposes its own entity-level tax on S-Corporation income. The California Franchise Tax Board charges 1.5% on California-source net income for S-Corporations. This is far lower than the 8.84% that C-Corporations pay. California also imposes a mandatory minimum franchise tax of $800 annually for all corporations. Newly incorporated corporations are exempt from the $800 minimum in their first taxable year, but the exemption doesn’t extend to subsequent years. If you incorporate on December 15th, your first taxable year ends December 31st the following year, and you owe no minimum tax for that period. But starting the second taxable year, the $800 minimum applies even if the corporation has zero income. File California Form 100S (California S Corporation Franchise or Income Tax Return) annually to report your corporation’s income and pay the 1.5% entity tax plus the $800 minimum. Your personal income tax return will include your share of pass-through income from the corporation.Professional Liability Insurance and Risk Management
Unlike California law corporations which face mandatory minimum professional liability insurance requirements, there is no explicit statutory minimum malpractice coverage mandated for optometric or medical professional corporations in the Moscone-Knox framework or optometry/medical practice statutes. In practice, however, professional liability insurance requirements are driven by hospital and surgical center credentialing, payer contracting requirements, landlord demands, and lender/investor requirements. The corporate structure doesn’t shield you from personal liability for your own professional negligence. Corporations Code §13403 makes clear that shareholders of professional corporations remain personally liable for their own negligent or wrongful acts. If you commit malpractice—improper diagnosis, treatment errors, failure to refer, equipment misuse, boundary violations—you’re personally liable for resulting damages regardless of the corporate structure. What the professional corporation provides is liability separation between shareholders for each other’s independent malpractice. If your co-shareholder commits malpractice and you weren’t involved in that case, had no supervisory relationship, and had no knowledge of the error, you’re generally not personally liable—though the corporation itself can be sued. Obtain coverage appropriate to your practice risks. Solo optometrists providing routine vision care typically need lower limits than ophthalmology practices performing cataract surgery, retinal procedures, or other surgical services. Standard policies for optometry range from $1 million per occurrence / $3 million aggregate to $2 million / $4 million for practices with higher exposure. Ophthalmology practices typically carry $1 million / $3 million as a minimum, with many carrying higher limits. Discuss coverage levels with an insurance broker who specializes in optometry or ophthalmology professional liability. If you’re structuring an integrated OD/MD practice, determine whether you need separate policies for each professional group or whether a single group policy covering all practitioners is more appropriate and cost-effective.Common Formation Mistakes and Compliance Traps
Choosing the Wrong Corporation Type. Ophthalmologists occasionally attempt to form optometric corporations because their work focuses on eyes. This creates immediate compliance problems. Ophthalmologists are physicians practicing medicine, not optometrists. They must form medical professional corporations under Medical Board oversight, not optometric corporations under Board of Optometry oversight. Using the wrong Articles form or wrong purpose clause can result in rejection by the Secretary of State or discipline by your licensing board. Violating the 51/49 Ownership Rule. The requirement that the primary profession own at least 51% isn’t a suggestion. If you’re forming an integrated OD/MD practice, calculate ownership percentages carefully before issuing shares. Optometrists must own at least 51% of an optometric corporation. Physicians must own at least 51% of a medical corporation. Equal 50/50 ownership between an optometrist and ophthalmologist violates the statute—one profession must be designated primary and must hold majority control. Non-Compliant Optical Retailer Relationships. Leasing space from an optical chain without structuring the arrangement to comply with 16 CCR §1514 creates discipline risk. Variable rent based on prescription volume, shared staff performing both retail and professional functions, commingled patient records, and retailer control over professional fees all violate the regulation. Have any proposed lease arrangement with an optical retailer reviewed by an attorney familiar with California optometry regulations before signing. Fee-Splitting with Optical Businesses. Arrangements where you receive a percentage of optical sales generated from your prescriptions, or where you pay the optical business a percentage of professional fees for space or referrals, violate Business & Professions Code §655. Structure financial relationships based on fair market value for actual space or services provided, not tied to volume or revenue. Giving Equity to Non-Licensed Staff. You cannot offer stock options or equity grants to your office manager, optometric technician, billing specialist, or marketing consultant no matter how valuable their contributions. Only licensed professionals in enumerated healing arts professions may own shares. Non-licensed individuals cannot hold any ownership interest except as temporary personal representatives of deceased shareholders. Commingling Personal and Corporate Funds. Opening a corporate bank account but treating it like your personal account destroys corporate liability protection. Every business expense must come from the corporate account. Every dollar of business income must be deposited to the corporate account. Pay yourself through formal payroll and documented distributions, not by withdrawing cash when you need money. Missing Annual Filings. The $25 annual Statement of Information seems minor, but missing it results in penalties and eventual suspension of corporate powers. A suspended corporation cannot legally conduct business, and during the suspension period your personal liability protection is compromised. Calendar the filing date, set multiple reminders, and don’t rely solely on receiving the Secretary of State’s renewal notice in the mail. Allowing MSO Overreach. If you use a dual-entity structure with a management services organization, ensure the MSO stays in its administrative lane. Any MSO involvement in setting professional fees, directing patient treatment, controlling clinical decisions, or interfering with professional judgment creates corporate practice violations. The MSO provides billing, scheduling, marketing, facility management—never clinical services or professional decision-making. Not Making Timely S-Election. You have 75 days from incorporation to file Form 2553 for S-Corporation status. Miss that deadline and you’re taxed as a C-Corporation for the entire year, facing double taxation on profits. File the S-election immediately after incorporation, get IRS confirmation, and keep the confirmation with your corporate records.Annual Compliance Calendar and Ongoing Obligations
Understanding your ongoing compliance obligations prevents costly lapses and maintains your corporation’s good standing with the Secretary of State, Franchise Tax Board, and licensing boards.January Through April (Statement of Information Window)
Your annual Statement of Information is due during the period corresponding to the month you filed your Articles of Incorporation. If you incorporated in March, your Statement of Information is due during the January-to-April period each year. The fee is $25. File online through BizFile Online for fastest processing.April 15 (or 4th Month, 15th Day of Tax Year)
Your California franchise tax payment is due April 15th for calendar-year corporations (or the 15th day of the 4th month after your tax year ends for fiscal-year corporations). File Form 100S if you elected S-Corporation status, or Form 100 if you’re a C-Corporation. Pay the 1.5% entity tax on California-source income (for S-Corps) plus the $800 minimum franchise tax. The first franchise tax payment is typically due the 15th day of the fourth month after the close of your first taxable year. For calendar-year corporations incorporated in January, the first payment is due the following April 15th. Remember that newly incorporated corporations are exempt from the $800 minimum in their first taxable year, but not subsequent years.Ongoing Professional License Renewals
All shareholders must maintain active, unrestricted professional licenses. Optometry licenses in California renew every two years. Medical licenses also renew biennially. Track all shareholder license renewal dates and ensure everyone maintains active licenses. If a shareholder’s license lapses, expires, is suspended, or is revoked, they can no longer legally own shares and the corporation must execute the mandatory redemption provisions in your bylaws.Equipment and Facility Compliance
If you’re leasing space from an optical retailer or commercial landlord, ensure your lease continues to comply with 16 CCR §1514 throughout the lease term. Periodic review of rent structure, operational separation, signage, and control over clinical matters helps catch compliance drift before it becomes a violation. Maintain professional liability insurance coverage without gaps. Track policy renewal dates and ensure coverage remains adequate for your practice scope. If you add new procedures, expand into surgical services, or bring on additional practitioners, review coverage limits with your insurance broker.Annual Shareholder and Board Meetings
Hold annual shareholder meetings and board meetings as required by your bylaws and California corporate law. Document decisions in formal minutes. Major decisions—adding shareholders, changing ownership percentages, amending bylaws, entering significant contracts, changing business locations—should all be documented through board resolutions and maintained in your corporate records book.Frequently Asked Questions
Can optometrists and ophthalmologists practice together in a single professional corporation?
Yes, but the structure depends on which profession will own majority control. If you form an optometric corporation, optometrists must own at least 51% of shares, with ophthalmologists owning up to 49%. If you form a medical corporation, physicians (including ophthalmologists) must own at least 51%, with optometrists owning up to 49%. Under Corporations Code §13401.5, both optometrists and physicians are enumerated as permitted cross-owners in each other’s professional corporations. The primary profession (whichever owns 51%+) determines whether you form an optometric corporation under Board of Optometry oversight or a medical corporation under Medical Board oversight. Each professional must practice only within their own scope of practice regardless of the corporate structure.What happens if I want equal 50/50 ownership between an optometrist and ophthalmologist?
Equal 50/50 ownership violates Corporations Code §13401.5’s requirement that at least 51% of shares be owned by the primary profession. You cannot form a valid professional corporation with equal ownership between different professional licenses. You must designate one profession as primary and ensure that profession owns at least 51%. If this ownership structure doesn’t work for your partnership, consider alternative arrangements: form a general partnership (which doesn’t have the 51/49 restriction but lacks liability protection), establish separate professional corporations for each profession with a management services organization coordinating operations, or negotiate slightly unequal ownership (51/49 or 52/48) with profit distributions adjusted to achieve economic parity.Can I lease space from a LensCrafters, Costco, or other optical retail chain?
You can lease space from an optical retailer if you structure the arrangement to comply with California Code of Regulations Title 16, §1514. This requires fixed rent (not based on volume or revenue), physical and operational separation from the retail business, exclusive control over your clinical staff and patient records, separate signage identifying your independent practice, and independence in setting professional fees and clinical decisions. The retailer cannot control your hours, advertising, or professional judgment. Many big-box and chain optical locations have pre-existing arrangements designed to meet these requirements, but you must verify compliance before signing any lease. Non-compliant arrangements create Board of Optometry discipline risk for your professional license.Can I offer employees equity in my professional corporation as an incentive?
Only if those employees hold active professional licenses in optometry, medicine, or other enumerated healing arts professions specified in Corporations Code §13401.5. You cannot offer equity to unlicensed staff regardless of their value to the practice. Office managers, optometric technicians, billing specialists, marketing consultants, and administrative staff cannot own shares. If you want to provide incentive compensation to non-licensed employees, use bonus structures, profit-sharing plans, or phantom stock arrangements that don’t grant actual equity ownership.If I close my professional corporation, what happens to patient records?
Patient records remain confidential and protected under HIPAA and California medical privacy laws regardless of corporate dissolution. When dissolving an optometric or medical professional corporation, you must arrange for proper transfer or storage of patient records in compliance with applicable retention requirements. Optometry records must generally be maintained for seven years from the last patient visit. Medical records have similar retention requirements. Options include transferring records to another practitioner who will continue providing care to those patients (with patient consent), maintaining records in secure storage with a compliant records management service, or if you’re continuing practice as a sole proprietor or in a different entity, transferring records to your new practice structure.Do I need separate professional liability insurance for the corporation and myself individually?
Professional liability insurance policies for optometry and ophthalmology typically cover both the individual practitioner and their professional corporation under a single policy. When obtaining coverage, specify that you’re practicing through a professional corporation and ensure both you individually and the corporation are named insureds. The policy should cover professional services rendered by the corporation and its licensed employees. Because Corporations Code §13403 maintains personal liability for your own professional negligence, you need individual coverage regardless of the corporate structure. If you have multiple shareholders, discuss with your insurance broker whether separate policies for each professional or a single group policy covering all shareholders provides better coverage and pricing.Can my optometric professional corporation own optical retail inventory?
This creates significant regulatory risk under Business & Professions Code §655’s prohibition on co-ownership between professional practices and optical businesses. While optometric corporations may dispense eyeglasses and contact lenses as part of professional practice, structuring the operation as a true retail optical business distinct from professional services potentially violates §655. The safer approach is to operate eyewear dispensing as an integrated component of professional optometric services (including dispensing in professional fees or as separate charges for materials and dispensing services provided by the optometric corporation) rather than as a separate retail business entity. If you want a true optical retail operation with substantial inventory, non-prescription products, or retail-focused marketing, consult with an attorney about structure options that maintain compliance with §655 and corporate practice restrictions.What if my co-shareholder loses their professional license?
When a shareholder’s license is suspended, revoked, or becomes inactive, they can no longer legally own shares in the professional corporation. Your corporate bylaws must contain mandatory redemption provisions addressing these scenarios. The corporation or remaining shareholders must purchase the disqualified shareholder’s shares within specified timeframes at a valuation determined by the method established in your bylaws (typically book value, formula-based valuation, or third-party appraisal). Timing requirements are strict—you cannot allow an unlicensed person to continue holding shares indefinitely. The corporate structure depends on all shareholders maintaining active licenses in permitted professions. Plan for license suspension or revocation scenarios in advance through well-drafted bylaws and shareholder agreements specifying redemption mechanics, valuation methods, payment terms, and dispute resolution procedures.Getting Started with Your Professional Corporation
If you’re ready to form your California optometry or ophthalmic professional corporation, begin by verifying your license status with the Board of Optometry or Medical Board, determining which corporation type you need based on whether optometry or medicine is your primary profession, deciding whether you’ll have co-shareholders and verifying their license status and types, analyzing any relationships with optical retailers for compliance with 16 CCR §1514, and reviewing potential referral or profit-sharing arrangements for compliance with Business & Professions Code §§650 and 655. Consider whether you need attorney assistance for formation. The mechanics aren’t insurmountable, but mistakes in optometry professional corporation formation create compliance problems that are costly to fix later and may trigger Board investigation. An attorney experienced with California optometry and ophthalmology practice structures can ensure your articles and bylaws contain required provisions, that your optical retailer or co-location arrangements comply with corporate practice restrictions, and that you’ve satisfied all eligibility requirements. For corporate governance documents including bylaws and organizational resolutions, our Corporate Bylaws Generator can help you create compliant documents. If you’re bringing in partners or co-founders, review our Co-founder Agreement Generator and Founders Agreement Generator to formalize your business relationships. Your professional corporation represents a significant commitment and involves navigating some of California’s most complex professional practice regulations. The corporate practice restrictions, optical retailer compliance requirements, and fee-splitting prohibitions create regulatory exposure that doesn’t exist for most other professional corporations. Take the time to structure it correctly from the beginning. If you need legal assistance with your California optometry or ophthalmic professional corporation formation, want a professional review of your proposed structure or optical retailer relationship, or have questions about your specific situation, schedule a consultation to discuss your practice needs.Official Resources and Primary Sources
Board of Optometry Website: https://www.optometry.ca.gov Laws and regulations: Optometry licensing and optometric corporation provisions Business and Professions Code §§3000-3167 California Code of Regulations Title 16, §§1514, 1546, 1548 Medical Board of California Website: https://www.mbc.ca.gov Laws and regulations: Physician licensing and medical corporation provisions Business and Professions Code §§2000-2529 Corporate Practice of Medicine resources and Fictitious Name Permit applications California Secretary of State BizFile Online (business search and filings): https://bizfileonline.sos.ca.gov Forms and fees: https://www.sos.ca.gov/business-programs/business-entities/forms Current processing times: https://www.sos.ca.gov/business-programs/business-entities/processing-times California Statutes Corporations Code §§13400-13410 (Moscone-Knox Professional Corporation Act): https://leginfo.legislature.ca.gov Business and Professions Code (optometry and medical practice provisions): Same source California Franchise Tax Board Corporate tax information: https://www.ftb.ca.gov/file/business/types/corporations/index.html Internal Revenue Service EIN application: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online Form 2553 (S-Corporation election): Available at IRS.govThis guide provides general legal information about forming California professional corporations for optometry and ophthalmology practices and is current as of publication date. Laws, regulations, board requirements, and fees change periodically. This information should not be construed as legal or tax advice for your specific situation. Consult with a qualified attorney and tax professional regarding your particular circumstances before making formation decisions. <!– Calendly inline widget begin –> <div class=”calendly-inline-widget” data-url=”https://calendly.com/sergei-tokmakov/30-minute-zoom-meeting?hide_gdpr_banner=1″ style=”min-width:320px;height:700px;”></div> <script type=”text/javascript” src=”https://assets.calendly.com/assets/external/widget.js” async></script> <!– Calendly inline widget end –>