We are often asked: “Why choose a California Professional Corporation or PC as the entity of licensed professionals?” Professionals who the State of California licenses often reach an important point in their careers when they must decide how to structure their practice. Physicians, attorneys, dentists, architects, and other licensed professionals frequently ask whether they should operate as sole practitioners, partnerships, or professional corporations. In many cases, the most appropriate structure is a California Professional Corporation, which is specifically designed for licensed professionals who wish to practice together while maintaining important legal protections.

California law limits certain professions to specific types of business entities. Unlike general corporations or limited liability companies, a Professional Corporation (often called a “PC”) is a specialized corporate structure created for individuals who must hold a state-issued professional license to practice their profession.

The California Professional Corporation structure is commonly used by licensed professionals, such as:

• Physicians and surgeons
• Dentists and dental specialists
• Psychologists and psychiatrists
• Optometrists
• Attorneys
• Certified Public Accountants
• Architects
• Veterinarians

For these professionals, the decision to choose a California Professional Corporation can provide both legal protections and practical business advantages.

Liability Protections Within a Professional Practice

One of the primary reasons to choose a California Professional Corporation is the protection it can provide between individual practitioners working within the same organization. In a professional practice where multiple licensed professionals work together, the actions of one professional should not automatically expose another professional’s personal assets.

For example, if a dentist within a dental practice commits malpractice, the other dentists who are shareholders of the same Professional Corporation are generally protected from personal liability for that professional’s conduct. Each licensed professional remains responsible for their own professional negligence, but the actions of one practitioner do not automatically create personal liability for the others.

That said, a Professional Corporation does not eliminate all forms of liability. There may still be responsibility for claims brought against the corporation itself, particularly when the claim arises from the business’s operations rather than the professional services of an individual practitioner.

Situations that can create corporate liability may include:

• Injuries to patients or visitors caused by unsafe conditions on the premises
• Negligence related to facility maintenance or equipment
• Employment-related claims involving staff members
• Administrative or operational errors affecting the practice as a whole

The Professional Corporation structure helps separate individual professional conduct from the broader operations of the organization.

Financial and Tax Advantages of the Professional Corporation

Another reason many professionals choose a California Professional Corporation is the financial advantages and protections provided by this type of corporate entity. Professional corporations allow licensed owners to structure their compensation, benefits, and retirement planning in ways that are more advantageous than if they operated as individual practitioners in their own small entity.

For healthcare professionals and other licensed specialists, a Professional Corporation may allow the deduction of several important business expenses, including:

• Health insurance premiums
• Professional liability and malpractice insurance
• Disability insurance coverage
• Continuing education and licensing costs
• Retirement plan contributions

Professional corporations may also support more substantial retirement planning opportunities through structured salary and retirement plan contributions. These benefits can play an important role in long-term financial planning for licensed professionals.

Ownership and Regulatory Requirements

A Professional Corporation exists specifically for licensed professionals. For this reason, California law imposes several important restrictions on the ownership and control of the PC. These rules are designed to ensure that the professional services provided by the corporation remain under the control of licensed individuals who are authorized and licensed by the State of California.

When professionals choose a California Professional Corporation, they must understand several important regulatory requirements:

• Shareholders must generally hold the same professional license as the services provided by the corporation
• Officers and directors are typically required to be licensed members of the profession
• Certain professions have strict naming rules that govern the naming of their practice
• State licensing boards may impose additional requirements on the structure and governance of the corporation

These rules help maintain professional accountability while allowing licensed practitioners to operate within a corporate structure.

How a Management Service Organization (MSO) Can Complement a Professional Corporation

In the healthcare field, many physicians, dentists, and medical providers combine a Professional Corporation with another business structure, a Management Service Organization (MSO). This model allows licensed professionals to maintain control over the clinical aspects of their practice while partnering with experienced business professionals who manage operational functions.

California has strict laws prohibiting the “corporate practice of medicine,” which means that non-licensed individuals cannot control medical decision-making. However, a properly structured MSO can legally provide administrative and operational support to a professional practice.

A Management Service Organization may provide services such as:

• Business operations and practice management
• Billing, collections, and revenue cycle management
• Accounting and financial reporting
• Human resources and staffing support
• Technology systems, facilities management, and equipment

This structure allows licensed professionals to focus on patient care while experienced business professionals manage the practice’s operational side.

Planning the Right Structure for Your Professional Practice

Choosing the correct business structure is one of the most important early decisions a licensed professional will make. When practitioners choose a California Professional Corporation, they are selecting a business entity that was designed specifically for licensed professionals working together within a regulated environment.

At the same time, forming and operating a Professional Corporation requires careful attention to regulatory compliance, ownership restrictions, tax considerations, and operational structure. Experienced legal guidance can help ensure the corporation is formed correctly and positioned to support the practice’s long-term goals.

The business and healthcare attorneys at the Watkins Firm have decades of experience assisting licensed professionals throughout San Diego and Southern California with business formation, corporate structure, and practice management strategies. For medical and healthcare providers, the firm also advises clients on how Professional Corporations and Management Service Organizations can work together within California law.

Why choose a California Professional Corporation or PC as a licensed professional in our State?  If you are considering the right entity for your professional practice, we invite you to discuss whether a California Professional Corporation makes sense and how that structure can support both your professional responsibilities and your long-term business objectives.

Pro-Tip: “It’s wonderful. It’s complicated, and it is completely involved. Unlike any other law we do. We’ve been doing this since the 1980s, representing doctors and medical entities, and physicians are the smartest people on the planet and they operate in laws that are the most complicated for any business I’ve ever heard of. My first job as an attorney I started working for an attorney named Chris Popov, who’s with me today. And that’s what his practice was, forming, selling and buying healthcare providers, companies, forming medical corporations, PT clinics, MRI centers, psychiatric groups that operated in multiple states, all kinds of complex laws, medical rules and regulations. And it, it took many, many years to master this area of law. I’m still learning.

The medical practice act, business and professions code section 2052 and the California business and professions code section 2400, generally cover a lot of what you can and can’t do. And one of the things you have to understand is who and can’t own a healthcare practice and what types of procedures you can use to facilitate the sale of a healthcare practice, to other licensed professionals. And also, how can we involve other business entities that aren’t licensed professionals in such a transaction?

The California Professional Corporation is a healthcare provider’s only business vehicle. Healthcare providers can’t be limited liability companies. They can’t be these other types of entities. They can be general partners, which is severe liability, or they can be professional healthcare corporations, which shields them from personal liability. To some extent, although a licensed doctor, the one who’s doing the work is always going to be personally liable. That’s why they have to spend so much money on malpractice insurance, but it also is a vehicle where you can bring in other shareholders who qualify. And there are a list of exceptions. Usually most of the owners of a professional corporation providing healthcare have to be licensed healthcare personnel, but there’s a list of exceptions to that law, but it is what doctors use to do business.

Most healthcare businesses have realized the cost savings and profitable advantages of Management Services Organization or MSOs. They can enter into agreements with other corporations or other business service providers. They can buy their own ancillary service providers as long as they comply with all the requirements for that too. So a sole medical practice through their medical corporation can branch out into other forms of business if they know how to do it. And if they work with an experienced lawyer at the Watkins Firm, we can structure everything so that they’re in compliance with Medicare and also the licensing rules and regulations for California, and any other state they’re in.” – Dan Watkins, Founding Partner

Ask the Watkins Firm About the California Professional Corporation or PC For Licensed Professionals

Ask your experienced startup, formation and business attorney at the Watkins Firm about the California Professional Corporation or PC For Licensed Professionals.  If you are in the medical or healthcare business field t is important to understand the unique advantages and protections of the California Professional Corporation and ask about the advantages of a Management Service Organization or MSO.

The Watkins Firm has more than four decades of experience in these matters, and has extensive knowledge and insight into the laws and regulations that govern medical business entities.  If you are interested in learning more about the California Professional Corporation or PC for licensed professionals or how an MSO might contribute to your medical practice or healthcare business we invite you to review our podcast Episode 7 – Medical Practices and Healthcare Businesses, well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.

Meet Daniel Watkins:

Daniel W. Watkins is a true people person who sincerely listens. He cares deeply about what others are going through.  Dan enjoys digging into the facts and finding creative solutions to problems.  He contributes his insights candidly and constructively.

Dan’s interest in people make him deeply invested in every relationship and his exuberant personality makes him a true litigator. Dan fights for his clients with a fierce and calculated commitment.

Dan has practiced in the areas of business, medical practices and healthcare business, high tech/science, real estate and employment defense law since 1987. He is a trusted litigation strategist and true trial attorney with over 50 jury and bench trials to his credit. Dan has successfully represented both large companies and individuals and achieved substantial victories in well-publicized trials throughout California and the U.S.

He is experienced in business and corporate formation and administration, as well as all forms of alternative dispute resolution, including binding arbitration and mediation.

THE ROAD TO BECOMING A BUSINESS LAWYER AND LITIGATOR

Dan has almost 40 years of experience working with, for and against some of the largest insurance companies in the country. He has successfully tried and litigated cases in the areas of Healthcare Compliance, Commercial Litigation, Unfair Business Practices, Fraud, Breach of Contract, Battery, Premises Liability, Product Defect, Medical Malpractice, Discrimination, Sexual Harassment, Construction Defect, as well as Unfair Competition, Defamation, and Trade Secrets.

In December 2003, Dan commenced litigation against Health South Surgery Centers-West, Inc and its’ subsidiaries, exposing the company’s extensive mismanagement and misconduct of its’ surgery centers. Dan has also been asked by some of California’s largest municipalities and corporations to conduct legally required investigations into matters involving alleged employment discrimination and harassment.