The Key Features of the Corporate Practice of Medicine in Los Angeles, California

Forming a Professional Medical Corporation in Los Angeles, CAIn California, forming and practicing as a professional medical corporation may provide legal advantages over practicing as a sole proprietor or medical partnership. However, incorporating a professional corporation is a tricky procedure, requiring strict compliance with state and federal statutes. Outlined below are some of the key features and reasons for forming a California professional medical corporation. 

What Is a Professional Medical Corporation?

A professional medical corporation is created under California state law and is designated to practice the profession of medicine. California professional medical corporations are governed by the Moscone-Knox Professional Corporation Act (Corp C §§1340013410), the general provisions of the California Corporations Code, and regulators promogulated by the Medical Board of California. Call your Los Angeles medical attorney for more information.

What Are Some Advantages of a Professional Medical Corporation?

Forming a Professional Medical Corporation in Los Angeles, CALegal Protection – A professional medical corporation allows for the separation of personal assets from business assets, limiting personal liability against lawsuits and creditors. While a professional corporation cannot protect a doctor from malpractice claims (professional liability), if formed and operated correctly, it may protect the doctors’ personal assets from claims arising from the malpractice of colleagues, some commercial claims, or employee-related lawsuits. This is especially important for a doctor running their own medical practice. 

Business Credit – Building business credit under a professional medical corporation can be beneficial when it comes time to form a partnership or sell your business. It also may avoid the need for personal guarantees. 

Taxation – By electing your professional medical corporation as an S-Corp, profits and losses pass through to shareholders, which avoids double taxation. S-Corp election also reduces self-employment taxes on shareholders who draw distributions. 

Fringe Benefits – Medical care and retirement plans are available under a professional medical corporation.  

Improper Formation: What Can Go Wrong?

Forming a Professional Medical Corporation in Los Angeles, CA

The consequences of improperly forming a professional corporation include:

• Forming an entity that doesn’t offer the protection or benefits you need.

• Missing the timeframe to file an S Corp election. 

• Falling out of compliance and losing the protection you formed the corporation to ensure. 

• Monetary Penalties. 

• Determination that the corporation is a de facto corporation.

What Is Needed to Form a Professional Medical Corporation?

Forming a Professional Medical Corporation in Los Angeles, CASeveral steps must be taken to form a professional medical corporation in California. The California Secretary of State has certain naming restrictions that professional corporations must meet in order to be approved. After deciding on a compliant name for the corporation, articles of incorporation must be drafted to contain several mandatory provisions and filed with the Secretary of State. 

Next, corporate bylaws, which identify the structure of the corporation and the rules by which it will function, must be prepared. 

Other steps include:

  • Conducting initial corporate meetings to issue shares and elect officers and directors. 
  • Obtaining an EIN number (federal tax id) from the IRS.
  • Opening a corporate bank account.
  • Filing an S-Corp Election with the IRS (if applicable). 
  • Filing a statement of information with the Secretary of State.
  • Applying for a business license. 
  • Applying for a fictitious business name (if applicable).


What Are the Restrictions of a Professional Medical Corporation?

Forming a Professional Medical Corporation in Los Angeles, CAA California professional medical corporation may only render services in medicine. Generally, the professionals must be licensed in the practice of medicine to be a shareholder of the California professional medical corporation (California Corporations Code §13401(b), (d)). 

However, other licensed professionals are eligible to be shareholders, officers, directors, or professional employees of a California medical corporation provided: 

  • The shares owned by these other members of similar professions do not hold shares totaling more than 49% of the total stock of the California professional medical corporation. 
  • The licensed doctor shareholders outnumber the non-doctor shareholders. 

The following are permissible shareholders and directors of California professional medical corporations (California Corporations Code §13401.5(a)):

  • Licensed doctors of podiatric medicine.
  • Licensed psychologists.
  • Registered nurses.
  • Licensed optometrists.
  • Licensed marriage and family therapists.
  • Licensed clinical social workers.
  • Licensed physician assistants.
  • Licensed chiropractors.
  • Licensed acupuncturists.

California professional medical corporations that have only one shareholder must have only one director, (who must be that shareholder). That shareholder is required to also serve as the president and treasurer of the corporation (California Corporations Code §13403). 

A California professional medical corporation with only two shareholders must have only two directors (who must be those shareholders). The two shareholders are required to fill the offices of the president, vice president, secretary, and treasurer (California Corporations Code §13403).

Taxation of Professional Medical Corporations

Forming a Professional Medical Corporation in Los Angeles, CAThere are two ways for California professional medical corporations to get taxed, as a C-corp or as an S-corp. All California professional medical corporations are C-corp by default unless they elect as an S-corp. 

C-Corp –The net income of a California professional medical corporation is taxable by the federal and state governments’ corporation tax rates. If any dividends are distributed to shareholders, the shareholders must report the dividends, which will be subject to income taxes. Taxation of dividends is commonly referred to as “double taxation” because the income is taxed once at a corporate level and then again when the profits are distributed to shareholders. 

S-Corp – A professional medical corporation that elects as an S-Corp becomes a pass-through entity for income tax purposes. Business income, deductions, loss, and tax credits, are passed through to the shareholders, rather than being taxed at the corporate level, thus avoiding double taxation. 

Conducting Business as a Professional Medical Corporation

In order to ensure the shareholders of a medical corporation maintain liability protection should the medical corporation be unable to pay its creditors or be sued, it is essential that a medical corporation maintains separate bank accounts from those of its owners. Further, any payments should be made to the medical corporation, with all checks made payable to the corporation and not to its shareholders. For the same reason as the previous point, the medical corporation should be sure to conduct all corporate business in the corporate name and not in the individual name of any director, officer, or shareholder.

Maintaining a Professional Medical Corporation

Forming a Professional Medical Corporation in Los Angeles, CASeveral actions must be taken in order to protect and maintain compliance with your professional medical corporation. 

Shareholders’ Meetings – California requires professional medical corporations to hold annual shareholders’ meetings. During these meetings, the chair presents different agenda items, and the shareholders’ vote. Agenda items may include, appointing directors to the board, removing directors, voting on shareholder initiatives, and board-initiated transactions that require shareholder approval, such as mergers, sale of assets, or dissolution.    

Board of Directors Meetings – Board of directors’ meetings revolve around the management of a professional medical corporation, as that is the responsibility of the board of directors. Typically, directors establish broad policies and objectives for the organization of the corporation; select, support, and review the performance of the CEO, ensure the adequacy of financial resources, and approve the annual budget. 

Minutes – Both shareholders’ meetings and board of directors meetings should be documented by minutes. Minutes are essential, as they are used as an official account of the decisions made during a meeting. 

Statement of Information – California requires corporations to file a statement of information with the Secretary of State annually. This can be done, at no cost, through the Secretary of State’s website ( 

Forming a professional medical corporation in California can seem like a complicated process, but the result can bring many advantages over other corporate entities. Pacific Health Law Group is focused on making the process streamlined and worry-free. We have the knowledge and experience to ensure all corporate documents are compliant and filed properly so that you can enjoy the excitement that comes from starting your own professional medical corporation. Call your Los Angeles medical corporation attorneys today to find out how we can help you.

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