A California professional medical corporation consists of medical professionals who want to form a professional corporation (PC). A California professional medical corporation must be owned and operated by shareholders that hold a medical license.

Defining a California Professional Medical Corporation

The California professional medical corporation was created out of the Moscone-Knox Professional Corporation Act. A California professional medical corporation includes the following individuals:

  • President.
  • Corporate secretary.
  • The treasurer or chief financial officer.

Depending on the type of business, there may be additional positions assigned.

It is possible to form a professional medical corporation with just one member. In this case, there will be only one director and one shareholder. The single owner will also act as the president and the treasurer. There may be additional positions assigned, and these roles do not need to be a licensed medical professional.

If a medical corporation has two members, there will be only two directors. These two directors will also be the only two shareholders. These two individuals will fill the roles of president, vice-president, secretary, and treasurer.

Requirements for Forming a Professional Corporation

Professionals in the California professional medical corporation must also follow industry regulations. These regulations dictate the requirements of each specific type of medical provider. Individuals can gather more information about these specific regulations by visiting their licensing board.

Every shareholder in the medical corporation must be licensed. Additionally, shares of the corporation can only be issued to those individuals licensed in that specific state. Individuals who are not licensed are also prohibited from a voting proxy.

Forming a California professional corporation requires a unique balance of medical and legal experience. Because a professional corporation is the only way to form a medical corporation, it is common among California medical professionals. The following medical providers may be a part of a professional medical corporation:

  • Physicians.
  • Nursing professionals.
  • Dentists.
  • Chiropractors.
  • Urgent care physicians.

Each professional must also be licensed to provide those services with their individual licensing board.

Forming a California Professional Medical Corporation

The first step in forming a California professional medical corporation is to file the articles of incorporation with the Secretary of State. The filing fee is $100. The articles of incorporation will require additional information:

  • Bylaws: The bylaws must describe how the corporation operates.
  • Shares: At least 51 percent of the shares must be owned by a licensed physician. Only up to 49 percent of the shares can be owned by other types of registered physicians such as podiatric medicine, psychologist, or optometrist.

It is important to follow these rules while also preparing for a shareholder to leave. If a shareholder leaves the corporation, it can quickly change the percentages and make the corporation illegal. Consider the appropriate steps to take if a shareholder exits the corporation.

Dealing With Disqualified Shareholders

California corporations are allowed to purchase their own shares as long as minimally one share is issued. If a shareholder loses their professional license or is deceased, the corporation must purchase the shares back. This process must take place within 90 days of losing a professional license or six months within the date of the death.

If this process does not take place during that time limit, the California corporation can be suspended and prohibited from conducting business. It can be helpful to draft a buy-sell agreement ahead of time to prevent complications during this process.

Restrictions of a California Professional Corporation

Professional corporations in the state of California are prohibited from the following acts:

  • Illegal fee splitting.
  • Kickbacks.
  • Any activities that violate their specific professional code.

Corporation members are expected to follow both their specific licensing regulations as well as the corporation codes. Corporations in California are also subject to a 35 percent tax rate. Fortunately, there are ways to reduce tax liabilities. However, medical professionals in the corporation setting are not allowed to form an LLC.

It is important to carefully consider who will own shares in a California professional medical corporation. Create a plan from the beginning on how you will handle shares when a shareholder exits the corporation. This can save everyone from costly fines or from the corporation being suspended.

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