Emily, a nurse practitioner, was thriving. She could already see the future of her professional nursing corporation, and she knew it would involve growth through selling shares in her nursing corporation and bringing in investors. But could she do that with all the legalities surrounding healthcare and nursing corporations in California?
Emily knew she needed to consult with a lawyer who specialized in nursing corporations and so she reached out with several important questions about forming and structuring her professional nursing corporation. Like many healthcare professionals, she was navigating the complexities of California’s professional corporation requirements while considering family investments, practicing in multiple states, and managing collaboration with supervising doctors. Her concerns highlighted key issues faced by many nurse practitioners as they set up their corporations.
Selling Shares in a Professional Nursing Corporation in California
As most entrepreneurs, Emily saw where her corporation could grow and where she could earn more. The key to growth: expansion and selling shares. Emily’s primary question revolved around this desire to grow through selling shares.
Emily’s question:
“I want to sell 10-20% of my corporation in 2.5% increments for $25,000 per increment. How many shares would be in that 2.5%?”
To answer this, we’re going to need to crack our knuckles and get out the calculators for some math.
Calculating Shares and Their Value
Step One: How Many Shares Are There in 2.5%
The first step is to calculate how many shares represent 2.5% of the total authorized shares. Assuming her corporation is authorized to issue 25,000 shares, 2.5% of that would be:
- 25,000 shares × 2.5% = 625 shares
Step Two: Use the Value Per Increment & Number of Shares to Calculate Total Value of the Nursing Company
Next, we calculate the total value of the company, given that 2.5% of it is valued at $25,000. If 625 shares represent 2.5% of the company, the full company value can be estimated by dividing $25,000 by 2.5%:
- $25,000 ÷ 0.025 = $1,000,000
Thus, the company’s total value is approximately $1,000,000.
Step Three: Take the Total Value and Divide it By the Number of Shares
So, if we are looking at a total value of $1,000,000 and 25,000 shares, we can determine what each share would be worth:
- $1,000,000 ÷ 25,000 shares = $40 per share
In summary, when Emily sells 2.5% of her company for $25,000, she would be selling 625 shares at a rate of $40 per share. This calculation ensures Emily understands how the number of shares, the percentage of ownership, and the company’s overall value are connected when offering equity to investors.
Family Investments: Who Can Be a Shareholder of a Nursing Corporation?
Understanding the cost of shares was only part of Emily’s question. Her parents were looking at investing in the future of her nursing business. So, Emily also wanted to know whether her parents could invest in her professional nursing corporation.
Family investments are a common consideration for many professionals, but in California, professional corporations have strict rules about who is allowed to hold shares. According to the law, only certain licensed professionals can own shares in a nursing corporation, including:
- Licensed nurses
- Licensed physicians and surgeons
- Licensed psychologists
- Licensed clinical social workers
- Licensed marriage and family therapists
- Licensed optometrists, and more
Since Emily’s parents are not licensed in any of these professions, they would not be eligible to become shareholders.
But Why Can Only Certain Licensed Professionals Become Shareholders in a Nursing Corporation?
Simply put, this restriction ensures that ownership of the corporation remains within the hands of qualified professionals, which helps maintain the integrity of the healthcare services provided.
Practicing Nursing in Multiple States with a Nursing Corporation: California and New York
Emily was looking for investors because she planned to expand her practice. She was specifically looking into expanding to New York, which raised the question of whether she could use the same corporation for both states.
While it is possible to register a California corporation as a foreign entity in New York, I advised Emily to form a separate corporation in New York.
Why Not Just Register as a Foreign Entity? Because of the Advantages!
This approach of forming a separate corporation in New York offers several advantages:
1. Cost Efficiency:
Forming a new entity in New York is more cost-effective than altering her California corporation and registering it as a foreign entity. New York also has strict name compliance rules that differ from those in California, which could require significant changes to her corporate name.
2. Simplified Business Sale:
Keeping the two corporations separate would simplify financial management and future business sales. If Emily decided to sell her practice in California or New York, having independent financials for each entity would make it easier to manage or sell one portion of the business without complications.
This strategy offers Emily flexibility and better control over her business as she expands across state lines. Which ultimately, is something she decided she didn’t want to compromise on since she had big goals ahead of her.
Supervising Physician Agreement and Standardized Procedures
Lastly, Emily needed assistance in drafting a collaboration agreement and standardized procedures with her supervising physician.
We strongly recommend that all medical professionals consult with attorneys who specialize in healthcare law for such matters. These legal experts are essential in ensuring that healthcare-related agreements comply with the complex regulations governing the field. By working with a qualified attorney, Emily can create a legally compliant standardized procedure agreement that meets California’s specific regulatory requirements.
Knowing Her Value, Selling Shares to Grow, Getting Investors, and Expanding Out of State: A Nursing Corporation Destined for Success
Emily’s journey may seem complicated at first glance, but her questions reflect the common challenges nurse practitioners face when setting up a professional nursing corporation in California.
Through careful planning and understanding of the legal requirements—such as selling shares, adhering to shareholder rules, and managing multi-state practices—Emily is now well-prepared to grow her practice successfully.
We believe in the success of nurses starting in California, and aim to provide information to help them succeed. For more information on forming a professional nursing corporation in California, visit our comprehensive guide on nursing PC requirements.
If you’re a nurse practitioner looking to establish your own corporation, contact us today for expert legal guidance tailored to your nursing business’ needs. Don’t put off your dreams of a growing professional nursing corporation any longer!
