PART 2 OF 4: The Professional Corporation in Depth

The default entity for California healthcare practices, and how it works.

For most California healthcare practices, the professional corporation is the central structure. It is the vehicle the law provides for licensed professionals to practice through a corporate entity, and it comes with specific ownership, naming, and governance requirements. This article examines the professional corporation and what forming and operating one entails.

What a professional corporation is

A professional corporation is a corporation organized under California's Moscone-Knox Professional Corporation Act to render professional services through licensed individuals. For a medical practice it is a medical corporation; for a dental practice, a dental corporation. It allows providers to practice in corporate form while keeping ownership and control in licensed hands, as the law requires.

Ownership requirements

Ownership of a professional corporation is restricted by statute:

• Shares must generally be held by licensed persons, and the practice must be majority-owned by the primary licensed profession.

• A limited minority interest may be held by certain other licensed professionals identified by statute.

• Unlicensed individuals and outside investors cannot hold shares in the professional corporation itself.

• Rules govern what happens to shares when an owner dies, becomes disqualified, or leaves.

Naming and formation formalities

Professional corporations face requirements ordinary corporations do not, including restrictions on the corporate name and specific formation and registration steps with the Secretary of State and the relevant licensing board. The corporation must also observe corporate formalities — governance, records, and filings — to maintain its status and the liability protection it offers.

What liability protection it does and does not provide

A professional corporation can shield an owner from many business liabilities and from certain acts of other providers, but it does not shield a provider from liability for their own professional negligence. No entity eliminates a clinician's personal responsibility for their own care. Understanding this boundary is needed to set realistic expectations about what the structure accomplishes.

Tax treatment

A professional corporation can generally elect how it is taxed, including options that affect how income is distributed and taxed at the entity and owner levels. The right election depends on the practice's economics and the owners' circumstances, and it is a decision best made with a tax advisor rather than by default.

How West Coast Health Law Can Help

We form and advise professional corporations for California providers — meeting the ownership, naming, and governance requirements and coordinating the tax and liability considerations that come with the structure.

West Coast Health Law offers a FREE consultation which you may schedule by clicking the button on our website.

This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Laws change and every practice is different; consult a qualified attorney about your specific circumstances.