You’ve found the right place. We work with chiropractic business owners and specialize in helping chiropractors navigate the legal complexities of running and selling their businesses here in California. We want to tackle a question we hear all the time: What happens if I want to sell my chiropractic practice (corporation)?
“Recently, Mark Jones, a practicing chiropractor, reached out with a common but complex question: ‘If we set up a chiropractic corporation and decide to sell the practice a few years down the road, would it cause complications to sell to a non-chiropractic entity?’
The short answer? In general, is no—so long as you’re open to applying a creative solution. Selling a chiropractic corporation in California presents unique challenges because of strict state regulations on who can own and operate these businesses. If you’re considering selling your practice to a private equity firm or a broader group of buyers, it’s critical to understand these restrictions and plan ahead to avoid potential legal roadblocks.
A Crack at Chiropractic Practice Sale
California’s complex healthcare landscape can make selling a chiropractic practice a uniquely challenging task, especially if you have a variety of buyers. Often, many private practice owners don’t anticipate them until they’re ready to exit their business. With strict regulatory requirements and ownership restrictions, chiropractors often find themselves facing unexpected obstacles when attempting to sell their practices, particularly to non-chiropractic entities or private equity firms.
One of our clients named Mark Jones, a practicing chiropractor, came to us with the exact issue. He reached out to Incorporation Attorney with a common but complex question: “If we set up a chiropractic corporation and decide to sell the business a few years down the road, would it cause complications to sell to a non-chiropractic entity?”
The short answer in general is “no”, so long as you’re open to applying a creative solution. Selling a chiropractic corporation in California presents unique challenges because of strict state regulations on who can own and operate these businesses. If you’re considering selling your practice to a private equity firm or a broader group of buyers, it’s critical to understand these restrictions and plan ahead to avoid potential legal roadblocks.
With proper understanding and strategic planning, these challenges can be effectively navigated to achieve a successful sale.
“Targeting the Spine” and Understanding the Ownership Challenge in Chiropractic Practices Before Selling a Chiropractic Business
Mark Jones, a well-established chiropractor in California, had built a thriving practice over two decades. As Mark began contemplating selling his practice, he realized that he cannot simply sell his chiropractic business to the highest bidder. California’s stringent regulations on chiropractic corporation ownership create significant barriers to selling a chiropractic practice to non-chiropractic entities. This restriction seemed to have significantly narrowed Mark’s pool of potential buyers, which then would have impacted his business’ sale value.
The first step toward developing an effective exit strategy is to understand these limitations. This prompted Mark to reach out to Incorporation Attorney.
Regulatory Framework: Who Can Own a Chiropractic Corporation?
Before thinking about how to sell a chiropractic practice, let’s start with the basics: who can own a chiropractic corporation based on California law? The state imposes strict control over who can own a chiropractic corporation to ensure quality care and professional oversight, and the key requirements include:
- Licensed chiropractors must maintain majority ownership. “Licensed chiropractors must own at least 51% of the corporation, while the remaining 49% can be owned by other licensed professionals—like doctors or psychologists.” This ensures that clinical decisions and patient care remain under professional supervision.
- Non-chiropractic entities are prohibited from direct ownership of chiropractic corporations. “Non-chiropractic entities, like private equity firms, can’t own any shares at all.”
Such restrictions complicate sales to non-professional buyers and can feel like a major roadblock. Whether selling a chiropractic practice in California has always been a part of your plan or not, knowing this detail is important to avoid problems should the time comes.
The Challenge of Selling a Chiropractic Practice in California
Dr. Jones initially sought to sell his chiropractic practice to a private equity firm interested in expanding into the healthcare sector. However, the firm could not legally acquire the practice due to California’s ownership restrictions. This presented a major hurdle, as the firm was willing to offer a competitive valuation.
The Spine-Twisting Impact of Ownership Restrictions on Sale Opportunities
California’s ownership restrictions introduced several significant challenges to Mark in selling a chiropractic practice in California.
Limited buyer pool
One of the most immediate hurdles in selling a chiropractic practice in California or in general is the limited buyer pool. Because only licensed chiropractors or other healthcare professionals can acquire a chiropractic practice, the number of potential buyers is significantly reduced. Unlike other industries where businesses can be sold to a broad range of investors, chiropractors must find buyers within a niche group, making the selling process more competitive and time-consuming.
Mark’s intention to sell to a non-chiropractic entity had been a back-breaking issue. He wanted to complete this transaction legally, but how?
Valuation concerns
With a smaller pool of potential buyers, the overall price may be affected when selling a chiropractic business. In a typical business sale, competition among buyers can drive up the value of a practice. However, when there are fewer interested parties, sellers may need to negotiate lower prices or offer more flexible terms to secure a buyer. This can be particularly frustrating for chiropractors who have spent years building a profitable and well-established practice.
Financing difficulties
As a chiropractor himself, Mark understands that many chiropractors who are interested in purchasing a practice face financing difficulty. Unlike private equity firms or corporate investors, individual chiropractors may lack the financial backing necessary to fund a large acquisition. This is one of the reasons why Mark chose a non-chiropractic entity as a buyer. Such private equity firms are more financially able and less likely to bargain for a meager sale price.
Meanwhile, chiropractors who hope to buy a practice find securing traditional financing quite challenging, as lenders often require significant capital or collateral. As a result, those who want to sell a chiropractic practice California may need to explore creative financing solutions, such as seller financing or gradual buy-in agreements, to facilitate the sale and make it financially viable for potential buyers.
Making Some Adjustments: Management Services Organization (MSO) as a Strategic Solution
More coming soon!
