Investing in a corporation involves money, time, and effort.  It is not as simple as just putting in your money and then getting your share of the profit.  Owners or shareholders must always remember that for every decision being made and every step being done, there are legal aspects that must be taken into consideration.

It is a common mistake for business persons in California to start investing in a corporation without even consulting an expert small business lawyer!

Let us take for example the case of one of our clients who called us because of a serious legal concern involving a medical corporation.  He is a 20% shareholder in this medical corporation with a doctor, and even ready to invest more.  But he is a non-physician or any other medical-related professional. He is purely a businessman who just wants to provide his administrative services to the corporation.

The question now is, “Can a non-physician own a medical practice in California?”

The answer to this is NO! Well, mostly no. Only certain licensed health professionals can be owners or partners in a medical practice in California.

A short sum could be to say only certain doctor-level certified professionals are allowed to own the medical corporation (51% or more), but other certain certified medical professionals are allowed to own up 49% but not the majority. Either way, business individuals and non-medical businesses are not on either list and not licensed and therefore are not permitted to own a medical practice in California.

What does the LAW say about owning a medical practice in California?

 

Can a Non-Physician Own a Medical Practice in California?

Why Can’t I Own a Medical Corporation as a Non-Physician?

The law says that only physicians and other certain healthcare-related professionals may become shareholders or partners in a medical corporation.  Why is this so?

The reason behind this law is ethical: medical professionals (and particularly physicians) are bound to a code of ethics and protocols–a critical part of their profession. You can see a look at The Code of Medical Ethics of the American Medical Association here for more insight into physician’s ethical and moral responsibility within their fields and how this code has changed over the years.

Several states in the US, including California, have adhered to regulations for the corporate practice of medicine: or corporations/private equity owning medical practices in various forms. The reason being that an unlicensed person must not interfere with the healthcare judgment and decisions of the physician. These include but are not limited to:

• • The working hours of a physician
  • The number of patients to accommodate in an hour
  • Hiring or firing employees concerning the clinical responsibilities
  • Procurement of medical equipment and supplies
  • Details of the insurance contracts
  • Billing process for patients

Essentially, these laws are put in place to protect the physician and the patient from competing concerns between a patient’s needs and interests of the business. The IRS even cites Painless Parker v. Board of Dental Exam from 1932 as a sample case study.

So, which professionals can own a medical practice?

As we mentioned, only certain licensed medical professional can legally own a medical corporation. Let’s breakdown who can own, including who can own majority (referencing greater that 50%) and who can own 49% or less.

Here is a list of licensed medical professionals who can legally own a medical corporation (including can own 51% or more):

• licensed physicians and surgeons
• licensed doctors of podiatric medicine

Here is a list of licensed “allied” medical professionals who can legally own a up to 49% of a medical corporation:

• licensed psychologists
• licensed optometrists
• licensed naturopathic doctors
• licensed physician assistants
• registered nurses
• licensed chiropractors
• licensed acupuncturists
• licensed marriage and family therapists
• licensed clinical social workers
• licensed professional clinical counselors

But as a businessman/corporation/company, I am capable of handling non-medical issues such as administration? Can I own then?

There is no doubt as to the capabilities of the businessman. He can provide all of the administrative services for the corporation including how to do the billing, how to take care of the insurance, run the staffing system, and all the other administrative tasks.

But the law clearly says that because he is:

1) unlicensed

2) a non-medical person

he cannot be an owner of a medical corporation and share the profit made from the physician’s medical practice.

We mentioned that he is a 20% shareholder in this medical corporation.  He already invested $25,000 into the corporation, and he was even planning to invest another $25,000!

As a business person, you do not want to be in this kind of situation where you have already invested but later realize that you cannot be an owner of the corporation!  This is such a total waste of money, time, and effort!

Why the client didn’t know that he could not own a medical practice in California?

It is a very common experience for us here at Incorporation Attorneys to have people call us after they have gone to Legal Zoom to create the corporations.  Some of our clients who have gone to this online legal service provider realize that:

• There is something wrong, but they don’t know what it is.

 

• They can’t fill out a form because they don’t have some of the necessary information that someone is asking for.

 

They don’t know how serious the matter is until they are stuck at some point.

So, they will call us at Incorporation Attorneys, just like what this businessman did.

He told us that he went to Legal Zoom to form the corporation and he just wanted to be certain that everything was in order. He wanted to ensure his investment was secure in this medical corporation. It’s lucky he cared to check before continuing to run his business or the government would have been the one telling him of his error– and we can guarantee it wouldn’t have been gently or low cost.

As he started to unravel certain parts of the corporation, he realized Legal Zoom didn’t explain to him that he cannot own a medical corporation!

So, our client did not understand that there are restrictions on ownership because one, the internet law firm didn’t explain it to him; and two, he just didn’t know what he didn’t know!

What We Do to Help Clients Fix the Legal Issues in Owning a Medical Corporation

Our expert small business lawyers here at Incorporation Attorneys make sure that our clients completely understand the process, restrictions, and all of the legal implications in owning a medical practice in California.

We apply these fundamental steps to help our clients fix this kind of situation:

They tell us what the problem is.

We gather as much information as we could to be certain that we do not miss out even on the simplest detail about the situation that our clients are going through.
1. Decipher the problem.
   After we gather all of the necessary information from the client, we will study the problem and consider every legal aspect of the situation carefully.
2. Explain the fix to the client.
   We do understand how pieces move together in forming and owning a corporation, so we can assure our clients that we give them the best legal advice to protect their interests, rights, and investments.

What is the best solution for the non-physician business person who wants to own a medical practice in California?

After receiving the LegalZoom paperwork, reviewing his investments, and discussing the role he wanted to play in the company, Incorporation Attorney was able to find a solution. He didn’t want to lose his investment (over $25,000) in the company, and he still wanted to assist with the business and administrative work. We knew exactly how he could do so.

The best solution in this scenario was that the non-physician businessman and the medical doctor each establish their own companies. The businessman would form an MSO (Management Service Organization). Our client, the businessman, could then be contracted out to render services for the doctor’s medical corporation.

This setup allows the doctor’s medical corporation to pay the businessman’s management company but does not insinuate that he is an owner of a medical corporation.  In this way, the businessman could establish a business relationship with the medical doctor legally. It may not have been how the businessman wanted (to be a legal owner), but it was a legal way they could invest in the company together.

 

Get Help and Legal Advice from the Expert Small Business Attorneys 

Many people who want to venture into a small business or are in the process of forming a corporation make the mistake of not consulting a small business attorney and end up facing legal problems.  As a business owner, you do not want to see any time, opportunity, or money wasted (such as what the business professional above went through).

Incorporation Attorneys has an established program that allows us to smoothly guide entrepreneurs like you through the process of creating your small businesses.  Contact us now to learn more about our small business services!

Additional resources:

http://www.mbc.ca.gov/Licensees/Corporate_Practice.aspx

http://www.mbc.ca.gov/About_Us/Meetings/Materials/644/edu-AgendaItem4-20150129.pdf