Form Your Physical Therapy Professional Corporation
Complete guide to incorporating your physical therapy practice in California. Understand PTBC requirements, ownership restrictions, and the step-by-step formation process.
Why Form a Physical Therapy Professional Corporation?
California requires physical therapists who want corporate liability protection to form a Professional Corporation (PC) under the Moscone-Knox Professional Corporation Act. A standard LLC or corporation cannot provide PT services.
Liability Protection
Separate your personal assets from practice liabilities. Shareholders are generally not personally liable for corporate debts and obligations (though malpractice liability remains personal).
Tax Flexibility
Choose between C-Corp taxation (flat 21% federal) or elect S-Corp status for pass-through taxation. S-Corp can reduce self-employment taxes compared to sole proprietorship or general partnership.
Professional Credibility
Operating as a professional corporation signals established practice status. Many referral sources and payers prefer contracting with incorporated practices.
Group Practice Structure
Professional corporations allow multiple licensed PTs to practice together with defined ownership percentages, profit sharing, and governance structures.
Practice Limitation
A PT professional corporation can ONLY provide physical therapy services. If you want to offer other services (chiropractic, massage therapy, personal training), you may need separate entities or an MSO structure.
PTBC Oversight
The Physical Therapy Board of California (PTBC) regulates PT professional corporations. While no specific PTBC approval is needed to form, you must maintain compliance with all PTBC regulations regarding practice.
Who Can Own a PT Professional Corporation?
California Business and Professions Code strictly limits who can be shareholders, directors, and officers of a physical therapy professional corporation.
- ✓ Licensed California Physical Therapists (DPT, PT)
- ✓ Licensed Physical Therapist Assistants (PTA) - minority only
- ✓ Trusts where beneficiary is a licensed PT
- ✓ Professional corporations owned by licensed PTs
- ✗ Physicians or other healthcare practitioners
- ✗ Non-licensed individuals (spouses, investors)
- ✗ Standard LLCs or corporations
- ✗ Hospitals or health systems
- ✗ Private equity firms or management companies
Director & Officer Requirements
All directors must be licensed physical therapists. The president (or chair) and at least one vice president must be licensed PTs. Officers who don't perform professional duties may be unlicensed.
License Lapse = Share Forfeiture
If a shareholder's PT license is revoked, suspended, or lapses, they must transfer their shares to a qualified licensee within 90 days. The corporation must have bylaws addressing this automatic disqualification.
PTA Minority Ownership
Physical Therapist Assistants may hold minority shares, but licensed PTs must maintain majority ownership and control. PTAs cannot be the sole shareholders or majority owners.
How to Form Your PT Professional Corporation
Follow these steps to properly incorporate your physical therapy practice in California.
Choose Your Corporate Name
Your name must comply with PTBC advertising regulations and California corporate naming rules. Most PT corporations use the licensee's name plus "Physical Therapy, A Professional Corporation."
- "[Name] Physical Therapy, A Professional Corporation"
- "[Name] PT, Inc." (or P.C.)
- "[Practice Name] Physical Therapy Professional Corporation"
Check availability: bizfileonline.sos.ca.gov
Draft Articles of Incorporation
Prepare articles that identify the corporation as a professional corporation and specify physical therapy as the purpose.
- Statement that it's a professional corporation
- Purpose: "To engage in the profession of physical therapy"
- Reference to Business and Professions Code Section 2688
- Incorporator signature (must be licensed PT)
File with Secretary of State
Submit the Articles of Incorporation to the California Secretary of State with the required filing fee.
Processing: 3-5 business days (standard), 24-hour expedite available
Method: Online at bizfileonline.sos.ca.gov or mail
Adopt Bylaws & Organizational Meeting
Hold an organizational meeting to adopt bylaws, elect directors, appoint officers, and issue shares to the founding PT(s).
- Shareholder qualification requirements (PT licensure)
- Automatic disqualification upon license loss
- Share transfer restrictions
- Director and officer requirements
Obtain EIN & Register with FTB
Apply for a federal Employer Identification Number and register with the California Franchise Tax Board.
S-Corp election: File Form 2553 within 75 days if desired
CA registration: Automatic upon SOS filing
File Statement of Information
Within 90 days of formation, file your initial Statement of Information with the Secretary of State.
Information required: Officers, directors, agent for service of process
Ongoing: File annually thereafter
Update Practice Registrations
Update your PTBC registration to reflect the corporate practice, obtain business licenses, and update provider enrollments.
Local: Business license, fictitious business name (if using DBA)
Insurance: Update malpractice policy to reflect corporate structure
Payers: Update Medicare/Medicaid/commercial payer enrollments
Formation and Ongoing Costs
Budget for both initial formation expenses and ongoing compliance costs for your PT professional corporation.
| Item | Cost | Frequency |
|---|---|---|
| Articles of Incorporation Filing | $100 | One-time |
| Statement of Information | $25 | Annual |
| California Franchise Tax (Minimum) | $800 | Annual |
| Registered Agent Service | $50-$300 | Annual |
| Legal Fees (Formation) | $1,500-$3,500 | One-time |
| Corporate Seal & Kit | $50-$150 | One-time |
| PT License Renewal | $300 | Biennial |
| Accounting & Tax Preparation | $1,000-$3,000 | Annual |
First-Year Tax Exemption
Corporations formed after January 1, 2024 are exempt from the $800 minimum franchise tax in their first taxable year. The tax is due starting in Year 2.
S-Corp Tax Savings
If you elect S-Corp status, you may save on self-employment taxes. S-Corp shareholders pay themselves a "reasonable salary" (subject to payroll taxes) and take remaining profits as distributions (no SE tax). Consult a CPA to model your specific situation.
Physical Therapy Board Compliance Requirements
While no PTBC approval is required to form a PT professional corporation, you must comply with all PTBC regulations regarding physical therapy practice.
Supervision Requirements
PTAs must be supervised by a licensed PT. One PT may supervise up to 3 PTAs at any one time. The PT must be on-site and available for consultation when the PTA is treating patients.
Advertising Regulations
All advertising must be truthful and not misleading. You must include the licensee's name and license number. Claims of specialty must be substantiated. "Board certified" requires actual board certification.
Patient Records
Maintain patient records for at least 7 years (10 years for minors after they reach age 18). Records must document evaluation, diagnosis, treatment plan, and outcomes.
Direct Access Limitations
California PTs can treat patients without physician referral, but certain limitations apply. For treatment beyond 45 days or 12 visits, the PT must consult with the patient's physician.
Continuing Education
Licensed PTs must complete 30 hours of CE every 2 years. PTAs must complete 20 hours. Maintain records of CE completion.
Prohibited Corporate Practice
Non-licensed individuals and entities cannot control the professional judgment of licensed PTs. While management companies can handle administrative tasks, clinical decisions must remain with licensed physical therapists.
Entity Structure Options for PT Practices
While a professional corporation is the most common structure, multi-location practices or those with non-PT investors may need additional entities.
Solo Practice PC
Single PT owner forms a professional corporation. Simplest structure. All ownership, management, and clinical decisions rest with one individual. Most common for new practices.
Group Practice PC
Multiple licensed PTs share ownership. Requires shareholder agreement covering buy-sell provisions, profit allocation, governance, and death/disability planning.
MSO + PC Structure
Management Services Organization (MSO) handles non-clinical operations while the PC provides clinical services. Allows non-PT investors to participate in the MSO. Complex but necessary for PE-backed practices.
MSO Compliance Risks
MSO arrangements must be carefully structured to avoid fee-splitting and corporate practice of medicine violations. The MSO cannot control clinical decisions or receive compensation tied to patient volume.
Multi-State Considerations
If expanding to other states, you may need separate professional entities in each state. California PT professional corporations cannot directly practice in other states without complying with those states' licensing requirements.
Selling Your Practice
Only licensed PTs can own PT professional corporations. This limits buyers to individual PTs or PT-owned groups. PE firms typically use MSO structures to acquire practices while maintaining compliant ownership.
Frequently Asked Questions
No. California law restricts PT professional corporation ownership to licensed physical therapists (and PTAs in minority positions). Physicians, chiropractors, and other healthcare professionals cannot own shares. However, physicians can refer patients to your practice under anti-kickback safe harbors.
No. Unlike some professional boards (like the Medical Board), the PTBC does not require pre-approval of PT professional corporations. You form the corporation with the Secretary of State, then ensure your practice complies with all PTBC regulations.
It depends on your income level and financial situation. S-Corp status can save self-employment taxes by allowing you to take some income as distributions rather than salary. However, you must pay yourself a "reasonable salary" first. Generally beneficial for practices netting over $50,000 annually. Consult a CPA for your specific situation.
Yes. You can file a Fictitious Business Name Statement to practice under a DBA. The DBA must comply with PTBC advertising rules. For example, "Smith Physical Therapy, A Professional Corporation" could operate as "Bay Area PT & Wellness" with proper FBN filing.
You must transfer or sell your shares within 90 days of license revocation, suspension, or lapse. The corporation's bylaws should specify the transfer process and valuation method. If you're the sole shareholder, the corporation may need to dissolve or bring in another licensed PT shareholder.
Yes. While only licensed PTs can own shares, the corporation can employ administrative staff, billing specialists, marketing personnel, and other non-clinical employees. PTAs can be employed (and even hold minority shares) but must be properly supervised by licensed PTs.
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