You Cannot Use an LLC for Clinical Practice
Business & Professions Code Section 3040 (optometry) and Section 2400 (medicine/ophthalmology) explicitly prohibit clinical eye care services through standard LLCs or general corporations. Professional corporations under Moscone-Knox are your only entity option for liability protection and tax benefits.
Optometric vs Medical Corporation
Understanding the key distinctions between corporation types for eye care professionals
Optometric Professional Corporation
Governing Law: B&P Code Sections 3160-3164
Regulatory Board: Board of Optometry
Ownership: 51% minimum optometrists (OD)
Scope: Vision care, eye exams, prescribing corrective lenses, disease detection, pre/post-op refractive surgery care
Critical: 16 CCR Section 1514 for optical retailer leases
Medical Corporation (Ophthalmology)
Governing Law: B&P Code Section 2400 + Moscone-Knox
Regulatory Board: Medical Board of California
Ownership: 51% minimum physicians (MD/DO)
Scope: Medical/surgical eye care including cataract surgery, glaucoma treatment, retinal surgery, oculoplastics
Additional: Fictitious Name Permit required for DBAs
Cross-Professional Practice Integration
Corporations Code Section 13401.5 permits cross-ownership between optometrists and physicians. You can form an integrated OD/MD practice in a single professional corporation, but the core profession must own at least 51%. An ophthalmology-led practice forms a medical corporation with 51% MD ownership. An optometry-led practice forms an optometric corporation with 51% OD ownership.
Ownership Rules
Who can own shares in California eye care professional corporations
Required (51%+)
- Optometric Corp: Licensed Optometrists (OD)
- Medical Corp: Licensed Physicians (MD/DO)
- Must hold active, unrestricted California license
Permitted (up to 49%)
- Physicians (MD/DO)
- Optometrists (OD)
- Podiatrists (DPM)
- Psychologists (PhD/PsyD)
- Licensed Clinical Social Workers
- Other Moscone-Knox Healers
Prohibited
- Unlicensed individuals
- Standard corporations
- LLCs
- Private equity firms
- Hospital systems (directly)
16 CCR Section 1548 vs Corporations Code Section 13401.5
California Code of Regulations Title 16, Section 1548 appears to prohibit cross-ownership by stating optometric corporation shares may only go to licensed optometrists. However, Corporations Code Section 13401.5 (the governing statute) explicitly authorizes cross-professional ownership. The regulation predates the current statutory framework and is superseded. When forming an optometric corporation with physician minority shareholders, rely on the statutory authorization in Section 13401.5.
Formation Steps
Step-by-step process to form your California eye care professional corporation
1
Verify License Status & Choose Core Profession
Confirm active, unrestricted license with Board of Optometry (for ODs) or Medical Board (for MDs). If forming integrated OD/MD practice, decide which profession will be primary (51%+ ownership). Primary profession determines corporation type and board oversight.
2
Choose Compliant Corporate Name
Optometric corporations: Include "optometry," "optometric," "vision," or "eye care" plus corporate designator (PC, APC, Inc., Corp.). Medical corporations: Identify medical nature ("Ophthalmology Medical Group," "Eye Surgery Center," physician name + "MD, Inc."). Search Secretary of State database for name availability.
3
Draft and File Articles of Incorporation
File Form ARTS-PC with Secretary of State ($100 fee). Include specific corporate purpose: "engage in the practice of optometry" (optometric corps) or "engage in the practice of medicine and surgery" (medical corps). State that shares will be issued only to licensed professionals per Corporations Code Section 13401.5.
4
Prepare Corporate Bylaws & Initial Documents
Draft bylaws addressing professional corporation requirements, share transfer restrictions (must require board approval and license verification), and mandatory redemption provisions for shareholders who lose licensure. Hold organizational meeting and document initial resolutions.
5
File Statement of Information & Obtain EIN
File SI-550 with Secretary of State within 90 days ($25 fee). Apply for federal EIN at IRS.gov (free, instant online). Open business bank account. Consider filing Form 2553 for S-Corp election within 75 days of formation.
6
Board Registration & Compliance Setup
Register with Board of Optometry (for optometric corps) or Medical Board (for medical corps). Obtain malpractice insurance ($1-3M typical). If using DBA for medical corporation, file for Fictitious Name Permit with Medical Board ($35). Set up payroll system for reasonable salary distributions.
Costs & Fees
Complete breakdown of formation and ongoing compliance costs
| Item | Fee | Payable To | Notes |
|---|---|---|---|
| Articles of Incorporation (ARTS-PC) | $100 | Secretary of State | Base filing fee |
| Statement of Information (SI-550) | $25 | Secretary of State | Due within 90 days |
| Board of Optometry Registration | Varies | Board of Optometry | For optometric corps |
| Medical Board Fictitious Name Permit | $35 | Medical Board | If using DBA (medical corps) |
| Federal EIN | Free | IRS | Apply online at IRS.gov |
| Expedited Processing (optional) | $500-$750 | Secretary of State | 24-hour ($500) or 4-hour ($750) |
| TOTAL (Basic) | $125-$160 | Excludes attorney fees and insurance | |
- Minimum Franchise Tax: $800/year to California FTB (applies after first taxable year)
- Statement of Information: $25/year to Secretary of State (annual filing)
- Professional Liability Insurance: $1,500-$5,000+ annually (optometry typically lower than surgical ophthalmology)
- Tax Return Preparation: $500-$2,000 for S-Corporation returns
- License Renewals: Every 2 years for all shareholders (OD and MD licenses)
S-Corporation Tax Savings
Most optometry and ophthalmology professional corporations elect S-Corporation tax treatment for significant self-employment tax savings.
- Pass-through taxation: No entity-level federal income tax
- Salary vs distributions: Pay reasonable salary (subject to payroll taxes), then distribute additional profits free of self-employment tax
- California treatment: 1.5% entity tax on S-Corp income plus $800 minimum franchise tax
- Filing deadline: IRS Form 2553 within 75 days of incorporation
Optical Retailer Compliance
Critical 16 CCR Section 1514 requirements for optometry practices in retail settings
Optical Retailer Lease Requirements
If your optometric practice operates within or adjacent to an optical retailer (LensCrafters, Costco, Walmart Vision, etc.), California Code of Regulations Title 16, Section 1514 imposes strict requirements to preserve professional independence and prevent corporate practice of optometry.
- Written Lease Required: All arrangements must be documented in a written lease agreement between the optometric corporation and the optical retailer
- Separate Entrance: The optometric practice must have a separate entrance or clearly delineated space
- Independent Signage: Practice must display signage indicating independent ownership separate from the retailer
- No Retailer Control: The optical retailer cannot control patient scheduling, fees, clinical decisions, or practice operations
- No Revenue Sharing: Lease payments cannot be tied to percentage of revenues or referral volume
- Patient Records: Optometric corporation must maintain exclusive control of patient records
Enforcement Risk
The Board of Optometry actively investigates arrangements that may constitute unlicensed corporate practice of optometry. Violations can result in license discipline for participating optometrists and civil penalties for retailers. Review any optical retailer lease with counsel before signing.
Single vs Dual Entity Structure
Choosing between integrated practice and separate clinical/business entities
Single Professional Corporation
Simpler structure, lower administrative costs
All operations in one entity
Works well for solo practitioners and small groups
Limited outside investment options
All assets exposed to malpractice liability
PC + Management Company (MSO)
Separates clinical from business operations
MSO can have outside investors (private equity)
Asset protection for equipment and real estate
Higher complexity and compliance costs
MSO fees must be at fair market value (Stark/AKS)
When to Consider MSO Structure
The MSO (Management Services Organization) structure is typically worthwhile when: (1) seeking outside investment for expansion, (2) multiple practice locations with shared services, (3) significant equipment and real estate holdings to protect, or (4) planning eventual sale to private equity. For single-location practices, the single PC structure usually makes more sense.
Frequently Asked Questions
Common questions about California optometry and ophthalmology professional corporations
Can an ophthalmologist form an optometric corporation?
No. Ophthalmologists are physicians (MD or DO) and must form medical professional corporations under Business & Professions Code Section 2400. They cannot form optometric corporations, which are reserved for licensed optometrists under B&P Code Sections 3160-3164. However, an ophthalmologist can own minority shares (up to 49%) in an optometric corporation led by optometrists.
Can optometrists and ophthalmologists practice together in one corporation?
Yes. Corporations Code Section 13401.5 allows cross-professional ownership. The key is determining which profession holds majority (51%+) ownership. If ophthalmologists (MDs) are the majority, form a medical corporation. If optometrists (ODs) are the majority, form an optometric corporation. Each professional practices within their licensed scope regardless of corporation type.
Do I need malpractice insurance for my professional corporation?
Unlike law corporations, there's no statutory minimum malpractice insurance requirement for optometric or medical corporations under Moscone-Knox. However, practical reality demands coverage. Hospital/surgical center credentialing, payer contracts, landlords, and lenders typically require proof of insurance. Standard optometry policies range $1-2M per occurrence. Ophthalmology practices typically carry $1-3M minimum, with surgical practices often requiring higher limits.
Can I work for an optical retailer as an employee instead of forming a corporation?
California law prohibits the corporate practice of optometry. Optical retailers cannot directly employ optometrists to provide clinical services. You must either form your own professional corporation that leases space from the retailer (subject to 16 CCR Section 1514 requirements), or work as an employee of another optometrist's or optometric corporation's practice. Direct employment by non-optometrist entities for clinical services is prohibited.
What happens if a shareholder loses their license?
Professional corporation bylaws must include mandatory redemption provisions. When a shareholder's license is revoked, suspended, or lapses, the corporation must redeem their shares within a specified timeframe (typically 90 days). This ensures the corporation maintains compliance with the licensed-shareholder requirement. The redemption price is usually based on a predetermined formula in the shareholder agreement.
How long does it take to form a California eye care professional corporation?
Standard processing at the Secretary of State takes 5-10 business days. Expedited processing is available: 24-hour service for $500, or same-day/4-hour service for $750. After SOS approval, you'll need to file your Statement of Information within 90 days, obtain your EIN (instant online), and complete any board registration requirements. Total time from start to fully operational: 2-4 weeks with standard processing, or as fast as 1 week with expedited service.
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