If you’re a physician looking to establish your own practice in California, you’ve probably realized that you can’t simply form a standard LLC or corporation like other business owners. California’s Corporate Practice of Medicine doctrine requires that medical practices be structured as professional medical corporations governed by the Moscone-Knox Professional Corporation Act. This isn’t just bureaucratic red tape—it’s a framework designed to ensure that medical decision-making remains in the hands of licensed physicians rather than corporate interests or lay investors.

This guide walks you through the entire process of forming a California medical corporation, from understanding why this structure is mandatory to navigating the specific ownership restrictions, tax implications, and ongoing compliance requirements that distinguish medical corporations from ordinary business entities.

Why California Requires Medical Corporations Instead of Regular LLCs

California enforces one of the strictest Corporate Practice of Medicine (CPOM) doctrines in the United States. Under Business and Professions Code Section 2400, corporations and other artificial entities have no professional rights, privileges, or powers in the practice of medicine except as expressly authorized by statute. This means you cannot simply form a regular LLC owned by non-physicians and employ doctors to provide medical services. The rationale is straightforward: medical decision-making should be controlled by licensed physicians who are subject to the Medical Board’s disciplinary authority, not by investors whose primary concern might be profits rather than patient care.

The Moscone-Knox Professional Corporation Act (Corporations Code Sections 13400-13410) provides the framework for physicians to practice through corporate entities while maintaining the professional autonomy that CPOM protections are designed to preserve. A medical corporation under this framework is a special type of professional corporation authorized to render professional services as defined in the statute, but only if it complies with strict ownership and control requirements.

This structure serves multiple purposes beyond just satisfying regulatory requirements. It allows physicians to enjoy certain liability protections for commercial obligations (like leases and vendor contracts) while maintaining personal accountability for their own professional negligence. It enables group practices to operate efficiently while ensuring that clinical decisions remain under physician control. And it provides a recognized legal framework for practice ownership that satisfies hospital credentialing requirements, insurance contracting, and Medicare/Medicaid participation rules.

Understanding Medical Corporation Ownership Rules: The 51/49 Requirement

One of the most critical aspects of California medical corporation formation is understanding who can actually own shares in the entity. Unlike regular corporations where anyone can be a shareholder, medical corporations face strict limitations codified in Business and Professions Code Section 2408 and clarified through Medical Board applications, particularly the Fictitious Name Permit Application which explicitly states the ownership requirements.

At least 51% of the outstanding shares of a professional medical corporation must be owned by licensed physicians and surgeons. This majority ownership requirement ensures that physicians maintain voting control over the corporate entity and its professional activities. The remaining 49% may be owned by specific allied-health licensees as permitted by Corporations Code Section 13401.5. These permitted minority shareholders include licensed podiatrists, licensed psychologists, registered nurses, physician assistants, and optometrists, among others, but only if their respective licensing boards also permit such ownership.

This 51/49 rule has significant implications for practice structure. If you’re planning a solo practice, the rule is simple—you own 100% as the sole licensed physician. But if you’re considering bringing in partners or minority investors, you need to carefully verify that each potential shareholder holds a license that qualifies under Section 13401.5 and that their licensing board permits ownership in a medical corporation. A common scenario involves physicians wanting to bring in a nurse practitioner or physician assistant as a minority owner. While this can be permissible, you must verify that the specific license type is on the approved list and that the individual maintains their license in good standing throughout their ownership period.

Beyond shareholders, the licensing requirements extend to directors and officers. Under Business and Professions Code Section 2408, every director and every officer (except assistant secretary and assistant treasurer positions) must be a licensed person under the relevant practice act. This means you cannot appoint a non-licensed spouse, business consultant, or attorney to serve as president, secretary, or director of your medical corporation. The assistant secretary and assistant treasurer exceptions provide limited flexibility for administrative convenience, but the core governance positions must be held by qualified licensees.

Another important structural option involves tiered ownership where one medical corporation owns shares in another. A medical corporation with at least one physician shareholder may itself be a shareholder of another medical corporation. This stacking structure can be useful for multi-location practices or complex ownership arrangements, though it adds administrative complexity.

Naming Your Medical Corporation: Requirements and Fictitious Name Permits

Your medical corporation’s name must comply with both Secretary of State requirements and Medical Board rules. Under Corporations Code Section 13403 and related regulations, the corporate name must contain words or abbreviations indicating it is a professional corporation. Common acceptable formats include using “Medical Corporation,” “A Professional Corporation,” “Prof. Corp.,” or similar designations after the practice name.

Many physicians prefer to operate under a more marketable name rather than their personal name followed by corporate designations. If you want your practice to be known as “Bay Area Aesthetics” rather than “John Smith, M.D., A Professional Medical Corporation,” you’ll need to obtain a Fictitious Name Permit from the Medical Board of California. This permit authorizes you to use a group or brand name for your practice while ensuring the Medical Board maintains oversight of the professional entity behind that name.

The Fictitious Name Permit application process requires you to demonstrate compliance with the 51% physician ownership rule and provide documentation of all shareholders’ licenses. The Medical Board reviews these applications to ensure the proposed name isn’t misleading and that the ownership structure satisfies statutory requirements. You’ll also need to coordinate with local county clerk’s office for any required DBA (Doing Business As) filings, creating a multi-step process that should be initiated early in your formation timeline.

When selecting your corporate name, check availability through the Secretary of State’s business search tool before filing. Name reservation is available if you want to secure a name before completing your formation paperwork, though this adds another step and small fee to the process.

Step-by-Step Formation Process

Step 1: Initial Planning and Professional Consultation

Before filing any paperwork, take time to consider the broader structure of your practice. Are you planning to be a solo practitioner or bringing in partners? Will you elect S-corporation tax status or operate as a C-corporation? Do you plan to use a fictitious business name requiring Medical Board approval? These decisions affect your formation documents and subsequent filings.

Consider consulting with both a healthcare attorney and a CPA familiar with medical practice taxation before finalizing your structure. The entity formation itself is relatively straightforward, but the tax elections, employment agreements, and operational documents require careful planning. An hour of professional consultation at this stage can prevent expensive restructuring later.

Step 2: File Articles of Incorporation with the Secretary of State

California medical corporations are formed by filing Articles of Incorporation of a Professional Corporation (Form ARTS-PC) with the Secretary of State. The current filing fee is $100 for standard processing. You can file online through the Secretary of State’s BizFile Online portal at bizfileonline.sos.ca.gov or submit paper forms by mail.

The Articles must include your corporate name (complying with professional corporation naming requirements), the name of the licensing board under which your professional services are rendered (Medical Board of California), your registered agent information (an individual or entity authorized to receive legal documents on behalf of the corporation at a California street address), and the incorporator’s signature.

Online filing typically processes within 2-3 business days for standard service. Expedited processing is available for additional fees ranging from $350 to $750 depending on the turnaround time required. Once approved, the Secretary of State issues a stamped copy of your Articles, officially creating your professional medical corporation.

Step 3: Obtain Your Federal Employer Identification Number (EIN)

Your corporation needs an Employer Identification Number from the IRS for tax filing, opening business bank accounts, and hiring employees. Apply online at irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online. The online application is free and provides immediate issuance of your EIN for domestic applicants with a Social Security Number or Individual Taxpayer Identification Number.

If you’re a non-U.S. citizen without a Social Security Number, you’ll need to apply by mail or fax using Form SS-4, which takes longer to process. Consider timing your EIN application with your S-corporation election if you plan to elect S-corp tax treatment, as the election must be filed within specific timeframes.

Step 4: Adopt Corporate Bylaws

Your bylaws are the internal governance document that establishes how your corporation operates day-to-day. Unlike the Articles of Incorporation which are filed publicly, bylaws are internal documents that don’t get filed with any government agency. However, they’re critically important for defining decision-making authority, share transfer procedures, meeting requirements, and officer responsibilities.

Medical corporation bylaws should include provisions specific to professional corporations: procedures for share transfer when a shareholder loses their license or dies, requirements that all directors and officers (except assistant secretary/assistant treasurer) maintain appropriate licensure, compliance with CPOM requirements, and mechanisms for ensuring the corporation remains in compliance with Moscone-Knox Act requirements.

Standard corporate bylaws templates won’t suffice for medical corporations. Either work with a healthcare attorney to draft bylaws tailored to your specific situation or use a template specifically designed for California professional medical corporations.

Step 5: Hold Organizational Meeting

After your Articles are filed and bylaws adopted, hold your initial organizational meeting. At this meeting, you’ll elect directors (who must be licensed as discussed above), appoint officers (president, secretary, treasurer, and any vice presidents or assistant officers), issue shares to initial shareholders (documenting the number of shares, consideration paid, and confirming each shareholder’s licensure status), adopt your bylaws, authorize opening a corporate bank account, and handle any other initial business matters.

Document this meeting with detailed minutes. Corporate formalities matter for maintaining liability protection, and the organizational meeting minutes serve as the official record of your corporation’s establishment.

Step 6: File Statement of Information

Within 90 days of incorporation, you must file a Statement of Information (Form SI-550) with the Secretary of State. This form requires you to provide your corporation’s business address, names and addresses of the Chief Executive Officer, Secretary, Chief Financial Officer, and all directors, your registered agent information, and a brief description of your business type.

The filing fee is $25. Unlike LLCs which file every two years, corporations must file their Statement of Information annually thereafter, with each subsequent filing due within the anniversary month of your original filing.

Step 7: Medical Board Registration and Fictitious Name Permit (If Applicable)

While the Secretary of State handles your general corporate registration, the Medical Board of California maintains oversight of your professional practice. Ensure all shareholders are properly licensed with the Medical Board and that their licenses remain active and in good standing.

If you’re using a fictitious business name (anything other than the actual licensed name of the owner-physician followed by professional corporation designation), submit your Fictitious Name Permit application to the Medical Board. This application requires documentation of ownership percentages, copies of all shareholders’ licenses, and the proposed fictitious name. Processing times vary, so submit this application promptly after formation if you plan to operate under a brand name.

Step 8: Local Business Licenses and Permits

Contact your city and county offices to determine what local business licenses or permits are required for your practice location. Requirements vary significantly by jurisdiction. Some cities require general business licenses, while others may have specific permits for medical offices. Healthcare facilities may also need permits from the local health department depending on the services provided.

Step 9: Set Up Payroll and Employment Infrastructure

If you’re hiring employees (including yourself as a physician-employee of your corporation), establish payroll systems for proper tax withholding, workers’ compensation insurance as required by California law, compliance with California employment laws including meal and rest break requirements, and proper employee classification to avoid misclassification penalties.

Many medical corporations engage professional payroll services to handle these complexities, which is usually worth the cost given California’s stringent employment regulations.

Tax Considerations: C-Corp vs. S-Corp Election

Your medical corporation starts as a C-corporation by default, subject to California’s 8.84% corporate tax rate on net income, plus federal corporate income tax. This creates the classic “double taxation” scenario where corporate profits are taxed at the entity level, and then again when distributed to shareholders as dividends.

Many medical corporations elect S-corporation tax treatment to avoid this double taxation. With an S-corp election, the corporation’s income passes through to shareholders’ personal tax returns, avoiding entity-level federal income tax. California imposes a 1.5% tax on S-corporation net income (as opposed to the 8.84% C-corp rate), but the pass-through treatment generally results in overall tax savings.

However, S-corp election comes with strict requirements: you cannot have more than 100 shareholders, all shareholders must be individuals (not other corporations or certain trusts), all shareholders must be U.S. citizens or residents, and there can only be one class of stock. Medical corporations typically satisfy these requirements, making S-corp election attractive.

The S-corp election must be filed on IRS Form 2553 within 75 days of formation (or by March 15 of the tax year for existing corporations wanting to elect for that year). California requires a separate election on Form 3560. Timing is critical, so coordinate with your CPA to ensure elections are filed correctly and on time.

Regardless of C-corp or S-corp status, California imposes a minimum annual franchise tax of $800 on all corporations. New corporations are exempt from this minimum in their first taxable year, but owe it annually thereafter starting with their second year. This $800 minimum applies even if your corporation has no income, making it an unavoidable ongoing cost of maintaining the corporate entity.

Additionally, California imposes a gross receipts-based LLC fee that applies only to LLCs, not corporations, so this particular fee won’t affect your medical corporation. Your tax obligations include the annual franchise tax (Form 3522), your corporate or S-corp tax return (Form 100 or 100S), and the minimum tax payment deadlines which fall on the 15th day of the 4th month of your taxable year.

The Professional Liability Shield: What It Protects and What It Doesn’t

One of the primary reasons physicians form corporations is liability protection, but it’s crucial to understand exactly what protection a medical corporation provides. Corporations Code Section 13407 makes clear that the professional corporation form does not limit a licensed person’s liability for their own negligence or for the acts of those under their direct supervision and control while rendering professional services.

This means if you commit malpractice, your personal assets remain at risk for that malpractice judgment. The corporation won’t shield you from professional liability arising from your own conduct. Similarly, if you supervise a nurse practitioner or physician assistant and their negligence injures a patient, you may face personal liability for failing to properly supervise.

What the medical corporation does protect is your personal assets from the corporation’s commercial and operational liabilities. If your medical corporation signs a five-year office lease and later can’t make rent payments, the landlord can go after corporate assets but not your personal home (absent a personal guarantee). If the corporation defaults on equipment financing, the creditor’s recourse is limited to corporate assets. If an employee brings a wrongful termination suit, they sue the corporation rather than you personally (unless you engaged in intentional wrongful conduct).

Additionally, the corporate form may protect you from the malpractice of other physician-shareholders in the same corporation, assuming you weren’t involved in supervising their care. If your partner in a two-physician corporation commits malpractice on their patient, their personal assets are at risk but yours generally aren’t. This inter-physician liability protection is one significant advantage of the corporate structure over solo practice.

Understanding these limitations helps set appropriate expectations. The medical corporation provides meaningful liability protection for business risks while maintaining personal accountability for professional conduct. It’s a balanced approach that protects patient interests while providing physicians reasonable protection from commercial liabilities.

Management Services Organizations and CPOM Compliance

Private equity investment in medical practices has increased dramatically, leading to the widespread use of Management Services Organization (MSO) structures. An MSO is a separate entity (often an LLC) that provides non-clinical administrative services to the medical corporation under a management services agreement. The MSO handles billing, marketing, human resources, facility leasing, equipment procurement, and other operational matters, while the medical corporation retains control over all clinical decision-making.

When structured properly, this arrangement allows non-physician investors to participate in the business aspects of healthcare delivery without violating CPOM prohibitions. The MSO can be owned by physicians, non-physicians, or a combination including private equity investors. The medical corporation pays the MSO management fees for administrative services, and the MSO earns its return through those fees rather than through direct ownership of the medical practice.

However, California authorities scrutinize these arrangements closely. An MSO arrangement violates CPOM if the MSO exercises control over clinical decisions, physician employment and termination, clinical staffing levels, diagnosis and treatment protocols, or patient scheduling that affects clinical care. The MSO cannot control the “incidents of medical practice” which must remain under physician corporation control.

Red flags that suggest CPOM violation include MSO agreements that give the MSO power to hire and fire physicians, MSO fees structured as a percentage of revenue (which may be interpreted as profit-sharing that gives the MSO a stake in medical decisions), MSO control over how many patients physicians must see daily, MSO dictation of clinical protocols, or MSO involvement in peer review or credentialing decisions.

If you’re considering an MSO structure for outside investment or operational efficiency, ensure the management services agreement clearly delineates that the medical corporation retains exclusive authority over all clinical matters, physician hiring/firing, clinical protocols, peer review, and patient care decisions. MSO fees should generally be fixed amounts or based on fair market value for actual services rendered, not percentages of revenue that create incentives to influence clinical decision-making.

Recent legislative attention including California’s SB 351 and increased Medical Board scrutiny means that MSO arrangements face heightened review. The structure can be legally compliant, but requires careful drafting and ongoing monitoring to ensure the line between administrative services and clinical control isn’t crossed.

Federal Compliance: Stark Law and Anti-Kickback Statute Considerations

While this guide focuses on California state law requirements, federal fraud and abuse laws significantly impact how you structure your medical corporation, particularly if you plan to see Medicare or Medicaid patients or receive any federal healthcare program reimbursement.

The Stark Law (42 U.S.C. §1395nn) prohibits physicians from referring Medicare or Medicaid patients for certain “designated health services” to entities with which they have a financial relationship, unless a specific exception applies. Designated health services include clinical laboratory services, physical therapy, radiology and imaging services, radiation therapy, durable medical equipment, and several other categories. If your medical corporation provides these services and you have an ownership interest in an entity providing them, Stark Law compliance becomes critical.

Common exceptions relevant to medical corporations include the in-office ancillary services exception, which allows referrals for services provided within your own practice under certain conditions, and the group practice exception for qualifying medical groups. Understanding these exceptions matters from the formation stage because how you structure ancillary service ownership, physician compensation, and referral patterns must fit within established safe harbors.

The Anti-Kickback Statute (42 U.S.C. §1320a-7b(b)) prohibits offering, paying, soliciting, or receiving anything of value in exchange for referrals of federal healthcare program business. This affects physician compensation arrangements, joint venture investments, lease agreements, and marketing arrangements. If your MSO fees are structured as percentage of revenue and Medicare constitutes a portion of that revenue, prosecutors could argue the fee arrangement constitutes illegal remuneration tied to referrals.

Violations of Stark or AKS can trigger False Claims Act liability (31 U.S.C. §§3729-3733) with treble damages and per-claim penalties. Even absent intentional fraud, technical violations can result in severe financial consequences.

From a practical formation standpoint, this means working with healthcare regulatory counsel if your medical corporation will provide designated health services beyond core physician evaluation and management, if you’re considering joint ventures with labs, imaging centers, or ancillary service providers, if you’re structuring physician compensation arrangements with productivity bonuses, or if you’re entering MSO arrangements where fee structures might implicate these laws. Getting the structure right from formation prevents expensive restructuring and potential liability later.

Insurance Requirements for Medical Corporations

Maintaining appropriate insurance coverage is essential for protecting both your medical corporation and your personal assets. Your insurance stack should include several layers of protection.

Professional liability insurance (malpractice coverage) is non-negotiable. Both the medical corporation and individual physicians should maintain appropriate coverage. Policy limits vary by specialty and risk tolerance, but underinsuring in this area can be catastrophic. When leaving a practice or dissolving your corporation, understand tail coverage requirements. Many policies are “claims-made” rather than “occurrence” based, meaning you need tail coverage to protect against claims filed after you leave practice for incidents that occurred during your coverage period.

General liability insurance covers premises risks like slip-and-fall injuries, property damage, and non-professional liability. This is standard business insurance that any medical office needs.

Employment Practices Liability Insurance (EPLI) protects against claims from employees alleging discrimination, wrongful termination, harassment, or other employment-related claims. Given California’s employee-friendly legal environment, EPLI coverage is strongly recommended.

Directors and Officers (D&O) insurance covers claims against directors and officers for decisions made in their governance capacity (not malpractice, but business judgment claims). This is particularly relevant if you have multiple shareholders or if you expect to make significant business decisions that might be second-guessed.

Workers’ compensation insurance is required by California law for all employers. Even if you’re the sole physician-owner, if you have any employees (front desk staff, medical assistants, nurse practitioners), you need workers’ comp coverage.

Business interruption insurance and cyber liability insurance (increasingly important given electronic health records and patient data protection requirements) round out a comprehensive coverage strategy.

Ongoing Compliance Calendar

Maintaining your medical corporation requires attention to ongoing compliance obligations. Unlike forming the entity, which is a one-time process, these obligations recur annually or at regular intervals.

The Statement of Information (SI-550) must be filed annually with the California Secretary of State. Your filing window is during the calendar month in which your corporation originally incorporated, and the fee is $25 each year.

Franchise tax payments to the Franchise Tax Board are due by the 15th day of the 4th month of your taxable year (April 15 for calendar year taxpayers). The minimum franchise tax is $800, and estimated tax payments are required quarterly if you expect to owe more than $800.

Annual tax returns must be filed with both the IRS (Form 1120 for C-corps or 1120S for S-corps) and California Franchise Tax Board (Form 100 or 100S). S-corporations issue K-1s to shareholders reporting their share of corporate income.

Medical Board license renewal for all physician-shareholders and other licensed professionals must be maintained. If any shareholder loses their license or lets it lapse, shares must be transferred within the timeframes specified in your bylaws to an eligible person to maintain CPOM compliance.

Continuing medical education requirements must be satisfied for all licensed shareholders to maintain their licenses.

Corporate meeting minutes should be maintained annually documenting director and shareholder meetings, major business decisions, and elections of officers.

If you have a fictitious name permit, it may need periodic renewal depending on Medical Board requirements.

Any changes in shareholders, directors, or officers should be reflected in updated corporate records and potentially in a new Statement of Information filing.

Maintaining this compliance calendar is not optional. Failure to file required documents can result in corporate suspension (where your corporation loses the ability to transact business in California until penalties are paid and filings brought current), which creates both legal and practical problems for ongoing practice operations.

Dissolution and Restructuring Considerations

Circumstances change. You might bring in a partner, sell your practice to a hospital system, or decide to retire. Understanding how your medical corporation can be restructured or dissolved is important from the start.

Bringing in a new physician owner involves issuing additional shares or having existing shareholders sell some of their shares to the new physician. The new physician must hold appropriate licensure, and you need to ensure the 51% physician ownership rule remains satisfied. Update corporate records, amend bylaws if necessary, and file updated Statement of Information reflecting any new officers or directors.

Selling your practice to a hospital or large medical group typically involves either an asset sale (where the buyer acquires the corporation’s assets like patient records, equipment, and contracts, but not the corporate entity itself) or a stock sale (where the buyer acquires the shares of the corporation). CPOM restrictions mean the buyer must be an entity authorized to practice medicine, which limits potential acquirers. Many hospital acquisitions are structured as asset purchases where the hospital employs the physicians directly rather than acquiring the professional corporation.

Dissolution requires filing Certificate of Dissolution with the Secretary of State, settling corporate debts and obligations, distributing remaining assets to shareholders, filing final tax returns with IRS and FTB, and notifying the Medical Board of practice closure. You must also address patient record retention requirements and provide appropriate notice to patients of practice closure, ensuring continuity of care.

If a shareholder dies or becomes disqualified (loses their license), your bylaws should specify the procedure for transferring their shares. Typically, shares must be transferred to an eligible person within a specified timeframe (often 90 days) to maintain compliance. Life insurance on key shareholders can provide liquidity for the corporation or remaining shareholders to purchase a deceased shareholder’s shares from their estate.

Frequently Asked Questions

Can I form a California medical corporation if I hold a medical license from another state?

No. You must hold an active California medical license to own shares in a California medical corporation. Simply having a license from New York or Texas doesn’t qualify you to be a shareholder in a California professional medical corporation. If you’re relocating to California or want to start a practice here, you must first obtain California medical licensure through the Medical Board of California’s standard licensure process.

Can my spouse who isn’t a physician own shares in my medical corporation?

No. Under Business and Professions Code Section 2408 and Corporations Code Section 13401.5, shareholders must be licensed persons (with limited exceptions for specific allied health professionals). Your non-physician spouse cannot own shares directly in your medical corporation. However, from a family law perspective, the shares you own are likely community property if acquired during marriage (California is a community property state), meaning your spouse has a community property interest in the shares even without being a direct shareholder. This distinction matters for tax planning and divorce scenarios, so consult with both a family law attorney and healthcare attorney if this is a concern.

Do I need both a CPA and an attorney, or can one handle everything?

You should engage both. A CPA focuses on tax planning, S-corp election timing, payroll tax compliance, and annual tax filings. An attorney focuses on entity formation documents, bylaws, operating agreements, regulatory compliance, and risk management. Some CPAs offer entity formation services, and some attorneys provide tax planning advice, but medical practice formation involves enough complexity in both areas that having specialists in each discipline serves you better. The cost of proper setup pales compared to restructuring expenses or penalties from getting it wrong initially.

How much does it cost to form and maintain a California medical corporation in the first year?

Direct government filing fees are relatively modest: $100 for Articles of Incorporation, $25 for Statement of Information, no cost for EIN application. However, realistic first-year costs include professional fees for attorney and CPA consultation (ranging from $2,000 to $10,000 depending on complexity), bylaws drafting, potential fictitious name permit application, business license fees varying by jurisdiction, initial insurance premiums, and setting up payroll systems. The $800 minimum franchise tax doesn’t apply in your first taxable year, but it kicks in annually starting year two. A reasonable budget for first-year setup costs including professional fees (excluding insurance premiums which vary by specialty) is $3,000 to $12,000, with ongoing annual compliance costs (SI-550 filing, franchise tax minimum, tax preparation fees) running $2,000 to $5,000.

What happens if I let my medical license lapse while owning shares in the corporation?

You become ineligible to own shares, and under your bylaws’ mandatory share transfer provisions (which should exist if your bylaws were properly drafted), you must transfer your shares to an eligible licensed person within the specified timeframe (typically 90 days). If you fail to transfer shares and continue operating, the corporation risks violating CPOM prohibitions, potentially exposing you to Medical Board discipline, corporate suspension, and invalidation of professional liability insurance coverage. Don’t let this happen—maintain license renewals and continuing education requirements diligently.

Can I pay myself whatever salary I want from my medical corporation?

If you elected S-corporation tax status, the IRS scrutinizes physician-shareholder salaries to ensure they meet “reasonable compensation” standards. You must pay yourself a reasonable salary for the services you perform before taking additional distributions. Setting an unreasonably low salary (to minimize payroll taxes) while taking large distributions is a red flag that can trigger IRS audit. What constitutes reasonable compensation depends on specialty, geographic location, hours worked, and other factors. Your CPA should help you establish a defensible salary that satisfies IRS requirements while optimizing your overall tax situation.

Is my medical corporation protected if I practice in multiple states?

Your California medical corporation provides its liability protections under California law. If you practice in multiple states, you may need to register your California corporation as a foreign professional corporation in those other states (if they permit it), or form separate professional entities in each state where you practice. Multi-state practice involves complex regulatory issues including each state’s CPOM rules, telehealth regulations, and professional corporation statutes. Don’t assume your California entity automatically protects you for practice conducted in Nevada or Arizona. Consult with attorneys licensed in each state where you practice.

Can I convert my existing LLC to a medical corporation?

If you already formed a regular LLC (which may itself violate CPOM if practicing medicine through it), you generally cannot convert it directly to a professional medical corporation. You would need to form a new professional medical corporation properly and then potentially transfer assets from the LLC to the new corporation. This involves tax implications, contractual considerations (some contracts may not be assignable), and potential CPOM violation cleanup. More importantly, if you’ve been practicing medicine through a non-compliant structure, consult with a healthcare attorney immediately to assess exposure and implement proper corrective measures.

Conclusion

Forming a California medical corporation requires navigating multiple regulatory frameworks simultaneously: the Moscone-Knox Professional Corporation Act establishing your corporate structure, the Medical Board’s CPOM enforcement ensuring physician control over clinical matters, tax regulations governing your entity’s financial obligations, and federal fraud and abuse laws constraining referral patterns and compensation arrangements. It’s more complex than forming a standard business entity, but the structure serves important purposes in maintaining professional autonomy while providing appropriate liability protections.

Start with proper planning, engage qualified professionals (healthcare attorney and medical practice CPA), file your formation documents correctly, establish compliant governance through properly drafted bylaws, and commit to ongoing compliance with annual filings and regulatory requirements. The investment in getting the structure right from the beginning protects your practice, your patients, and your professional license.

If you’re ready to discuss your specific situation, schedule a consultation to review your practice plans and develop a formation strategy tailored to your circumstances.

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