Should You Incorporate Your Medical Practice?

All businesses need to have the right foundation in place; medical practices are no exception. This raises an important question: Should you incorporate your medical practice in California? A medical practice with more than one physician should generally be incorporated as a professional corporation (PC). In this article, our Fremont medical practice attorney highlights the most important things to understand about the business structure for a medical practice in California.

Understanding Your Options for Structuring a Medical Practice in California

California law has specialized rules and regulations for medical practices. You cannot set up a group medical practice as a limited liability company (LLC), limited liability partnership (LLP), or a corporation in California. Group medical practices are subject to the state’s Moscone-Knox Professional Corporation Act. Under the statute, physicians who incorporate must do so as a California professional corporation (PC).

A California Medical Practice with More than One Physician Should be Incorporated

While it is possible to operate a group medical practice as a general partnership—but not a limited liability partnership—in California, doing so is usually a major mistake. If you are structuring a new group medical practice in California, the best form is a professional corporation (PC). Here are two reasons why a medical practice with multiple physicians should be incorporated as a PC in California:

1. Liability protection: The most important advantage of a PC is that it provides some liability protection. Sole proprietors can be held personally liable for all their business debts. General partners can be held liable for their debts and their partner’s debts. Only a PC offers some liability protection for physicians in a group medical practice. Through a PC, doctors can protect themselves against personal liability for the contracts, leases, and other debts of the business. It should be noted that there is an exception for professional negligence. Adequate medical malpractice coverage is important. However, if a doctor did not personally contribute to the alleged malpractice, a professional corporation does provide personal liability protection against a claim for malpractice against another physician of the practice.
2. Tax advantages. Tax preparation and tax planning is an important aspect of structuring a business. A qualified professional medical corporations can be taxed as an S corporation. This has the potential to save physicians on tax liability. Tax questions are complicated. Physicians forming a group medical practice in California should be sure to consult with a qualified tax accountant to ensure that their tax liabilities are handled properly.

There are specialized legal considerations for structuring a group medical practice. Beyond opting to incorporate as a PC, doctors forming a group practice also need to consider key business issues such as share ownership, financial contributions, compensation, control rights over the business, and exit options. It is best to consult with a California business formation attorney who has prior experience helping physicians set up professional corporations.

Contact Our California Business Lawyer for Medical Practitioners

Lynnette Ariathurai is a top California business law attorney with extensive experience working with medical practitioners. Give us a call now or contact us online for a completely confidential consultation. We help physicians structure businesses in Fremont and throughout the Bay Area.