If you’re a doctor in California, you SHOULD form a professional medical corporation taxed as an S-Corporation and cannot open as a traditional LLC.
California law prohibits doctors from forming LLCs or a traditional corporations for their medical practices. Instead, you must register as a Professional Corporation.
If done incorrectly, your Professional Corporation can be rejected by the Secretary of State, leaving you vulnerable to potential lawsuits and fines from various government agencies. You may even face discipline from the Medical Board of California.
As a Business Lawyer for Professionals, I’m assisted hundreds of doctors and physicans just like you start their Professional Corporation and I can definitely help you start yours.
California Professional Medical Corporation Benefits
A Professional Medical Corporation is a special type of corporation that doctors and physicians must form if they’re offering a professional service (for basically working as a doctor or opening a medical practice).
There are plenty of benefits of incorporating a professional medical corporation in California.
Correctly starting a medical corporation in California will limit your personal liability against creditors and lawsuits, minimize the self-employment taxes of the shareholders, pass profits and losses through the shareholders to avoid double taxation, allow you to build corporate business credit, and much more.
3 Steps to Starting a Medical Professional Corporation
The 3 steps to starting a Medical Professional Corporation are:
- File the Articles of Incorporation of a Professional Corporation with the Secretary of State to form the Professional Corporation
- Notify your Profession’s state agency that manages your profession, hold a Board of Director’s Meeting and appoint directors, have California Professional Medical Corporation Bylaws drafted, apply for your EIN, file your Statement of Information, file Form 2553 for S-Corporation tax election, pay California corporate taxes to the California Franchise Tax Board, register with the EDD if you will be hiring employees, and apply for local business registration and licenses.
- Do all the steps above yourself or hire a Business Lawyer to do everything for you.
Professional Medical Corporations Requirements
According to the California Corporations Code 13401(b), all professional corporations must be registered with the corresponding government agency that is tasked to manage their profession.
A professional medical corporation must be oﬃcially registered with the Medical Board of California. California medical corporations must also abide by the Title 16 of the California Code of Regulations, in regards to Medical Professional Corporations.
Name Requirements of Professional Medical Corporation
The professional medical corporation’s name must include the name or surname of one or more of the present prospective or former stockholders of the Corporation.
Who Can Be A Shareholder In A Professional Medical Corporation?
Licensed individuals in the following professions can be issued stock in a professional medical corporation:
- Licensed doctors of pediatric
- Licensed psychologists.
- Licensed optometrists.
- Licensed marriage and family
- Licensed clinical social
- Licensed physician assistants.
- Licensed chiropractors.
- Licensed acupuncturists.
- Licensed professional clinical
- Licensed physical therapists.
- Licensed pharmacists.
Any of the above listed professionals can be issued stock in the professional medical corporation as long as they do not own more than 49% of the total stock of the medical corporation.
Also, the number of non-doctor shareholders cannot outnumber the number of persons licensed by the Medical Board of California.
Can A Professional Medical Corporation in California Use A Fictitious Business Name?
Yes, according to Section 2415 of the California Code of Regulations, if you will be opening your medical corporation under a fictitious name, you must file a fictitious name permit with the Medical Board of California. You can apply and find out more about the fictitious name permit here: http://www.mbc.ca.gov/Applicants/Fictitious_Name/
The proposed name cannot be misleading, deceptive, confusing, or similar to a previously issued name.
When Is It A Requirement To Obtain A Fictitious Name Permit?
A fictitious name permit is required if you are a licensed physician and surgeon, or podiatrist, practicing under a fictitious, false or assumed name in any public communication, advertisement, sign or announcement.
Do You Always Need A Fictitious Name Permit For A Medical Corporation?
No, you do not always need a fictitious name permit for a medical professional corporation. The name and last name of the physician or podiatrist is used, followed by Medical Doctor, M.D., Podiatrist, Doctor of Pediatric Medicine, D.P.M., Medical Corporation, Medical Corp., Podiatry Corporation, Podiatry Corp., Professional Corporation, Prof. Corp., Corporation, Corp., Incorporated or Inc.
Examples: “John Doe Medical Corporation” or “John Doe, M.D. Inc.”, then no fictitious name permit is required. However, the physician’s name must match the legal name on the physician’s medical license.
Are There Any Specific Name Requirements For Fictitious Name Permits?
Yes. The proposed name cannot be misleading, deceptive, confusing, or similar to a previously issued name. Also, a doctor of podiatric medicine must include the designation “pediatric,” “podiatry,” “podiatrist,” “foot” or “ankle.”
Do You Need To Incorporate With The Secretary Of State Before Applying for A Fictitious Name Permit?
Yes, the Medical Board of California requires a copy of the Articles of Incorporation to insure that the corporation is active and is a professional medical corporation.
If a corporate name is issued by the Secretary of State and is not available as a fictitious name, the physician has the option of amending the corporate name to match the fictitious name.
This amendment should be done after the fictitious name has been issued by the Board. The corporate name may be diﬀerent from the fictitious name. Also, the approval of the corporate name does not give permission to advertise that name to the public if it is a fictitious name.
Do You Need To Inform the Medical Board If You Decide To Amend The Medical Corporation’s Name?
No, the Medical Board would only need to be notified if there is a complete change of the medical corporation. This would only apply to physicians who have a fictitious business name with the Medical Board. Any other corporate matters should be addressed to the Secretary of State.
How To Form A California Professional Medical Corporation
Here are the 9 steps you must take to form a California Professional Medical Corporation:
- File the Articles of Incorporation with Secretary of State and pay the filing fee. The filing fee is currently $100. You must also state within its Articles of Incorporation that its purpose is “medical”
- Conduct a corporate meeting where you will issue shares and elect oﬃcials and directors for the Professional Medical Corporation
- Create custom California Professional Medical Corporation bylaws
- Apply for an EIN
- File the Statement of Information with the Secretary of State
- File Form 2553 for S-Corporation Tax Election for the Professional Medical Corporation
- Pay California Corporate Taxes and Fees to the California Franchise Tax
- Register with the EDD if you will be hiring employees
- Apply for local business registration and licenses
Can A California Medical Corporation Be Owned By A Single Shareholder?
Yes. A California Medical Corporation may be owned by a single shareholder.
If that is the case, the shareholder must be a person licensed to practice medicine in California and must serve as both president and treasurer for the corporation. The other oﬃcers of the corporation do not need to be licensed to practice medicine.
What Happens If A Shareholder In The Professional Medical Corporation Is Disqualified Or Has Died?
If a shareholder in the professional medical corporation becomes disqualified from rendering professional services in California or dies, the corporation must acquire all the shares of the shareholder. If the disqualified shareholder or the representative of the deceased shareholder does not transfer all the shares to the corporation, to another shareholder of the medical corporation, to a person licensed to practice the same profession, or to a licensed person, within 90 days following the date of disqualification, or within six months of the shareholders death, the certificate of registration of the medical corporation may be suspended or revoked.
Are The Shareholders Of The Professional Medical Corporation Liable For The Debts And Obligations Of The Corporation?
Generally, a shareholder of the professional medical corporation are not liable for the debts and obligations of the corporation, unless the shareholder:
- Personally guarantees a debt or obligation,
- Engages in tortious conduct,
- Receives improper distributions of the professional corporation’s assets,
- Intermingles personal and corporate matters (alter ego; piercing the corporate veil), or
- Breaches a duty owed to other
How Are Professional Medical Corporations Taxed In California?
California Medical Corporations are generally taxed as a C-Corp, which means that its total income are taxable by both the federal and state governments at corporation tax rates. If the medical corporation is distributing dividends to shareholders, the shareholders must report the dividends as income, which is taxed both at the federal and state income tax levels. This is referred to “double taxation”.
S-Corporation Tax Election for Medical Professional Corporations
To avoid double taxation, California medical corporations are urged to file Form 2553 for S- Corporation Tax Election. By being treated as an S-Corporation rather than a C-Corporation, the medical corporation will be treated as a pass through entity.
The doctor will pay himself a salary and will take the rest as owner distribution or draw.
What To Do Next
While these following these steps above might seem straight forward, one mistake while creating your medical corporation can cause your corporation to be rejected by the Secretary of State.
As a Business Lawyer for Professionals, I’ve assisted hundreds of doctors and physicians just like you start their California Medical Corporations and I can definitely help you with yours.
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