A California professional medical corporation must be formed under the Moscone-Knox Professional Corporation Act, which limits share ownership to licensed healthcare professionals, requires physicians to hold majority control, imposes specific naming and filing rules through the Secretary of State and Medical Board, and carries ongoing compliance and tax obligations once the entity exists.1California Legislative Information. California Code CORP – Moscone-Knox Professional Corporation Act Physicians are not required to incorporate and can practice as sole proprietors or in partnerships, but those who do choose the corporate form must use this specific entity type rather than a standard business corporation.
Who Can Own Shares
Licensed physicians and surgeons must hold at least 51 percent of the corporation’s total shares at all times. The remaining 49 percent can be held only by other licensed healthcare professionals named in the statute, and the total number of these minority shareholders cannot exceed the number of physician-shareholders licensed by the Medical Board.2California Legislative Information. California Code CORP 13401.5 – Professional Corporations
The eligible minority shareholders for a medical corporation are:
- 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
- Naturopathic doctors
- Licensed professional clinical counselors
- Licensed physical therapists
- Licensed pharmacists
- Licensed midwives
- Licensed occupational therapists
No unlicensed person can own shares, regardless of their role in the business. An office manager, financial advisor, or family member without a qualifying license cannot hold a single share.2California Legislative Information. California Code CORP 13401.5 – Professional Corporations
When a Shareholder Loses Their License
A shareholder who becomes legally disqualified from practicing medicine, whether through revocation, suspension, or any other reason, is classified as a “disqualified person” under the Corporations Code.3California Legislative Information. California Code CORP 13401 – Professional Corporations Their shares must be sold or transferred to the corporation, another existing shareholder, or another licensed person within 90 days. If a shareholder dies, the estate has six months to complete the transfer.4California Legislative Information. California Code Corporations Code CORP 13407
Missing these deadlines carries real consequences. The regulating agency can suspend or revoke the corporation’s certificate of registration, forcing it to stop providing professional services.4California Legislative Information. California Code Corporations Code CORP 13407 Shares transferred to anyone who is not a licensed person are void under the statute. The corporation’s bylaws or articles should spell out the transfer procedure before the situation ever arises.
Directors and Officers
The number of directors and officers depends on the number of shareholders. The Moscone-Knox Act sets simplified rules for smaller corporations and defers to the General Corporation Law for anything it doesn’t address.5California Legislative Information. California Code CORP 13403 – Professional Corporations
With one shareholder, that person serves as sole director, president, and treasurer; other officer positions like secretary can be filled by unlicensed people. With two shareholders, both must serve as directors, and between them they must fill the offices of president, vice president, secretary, and treasurer. With three or more shareholders, the General Corporation Law requires a minimum of three directors.6California Legislative Information. California Code CORP 212 – Corporations
The people running the corporation must generally be the same people licensed to own shares. That keeps medical decision-making in the hands of practitioners rather than business-only managers, which is the point of the professional corporation framework.
Naming the Corporation
A medical corporation can adopt any name permitted by the laws and regulations governing the medical profession in California.7California Legislative Information. California Code CORP 13409 – Professional Corporations Medical Board regulations require the corporate name to include a status designation. Corporations with a majority of physician-shareholders use “Medical Corporation” or “Medical Corp.” Corporations with a majority of podiatrist-shareholders use “Podiatry Corporation” or “Podiatry Corp.” These designations cannot be swapped.8New York Codes, Rules and Regulations. 16 CCR 1344 – Namestyle
Without a fictitious name permit, the corporate name must be restricted to the surname of one or more present, prospective, or former physician-shareholders.8New York Codes, Rules and Regulations. 16 CCR 1344 – Namestyle A practice run by Dr. Patel can be “Patel Medical Corporation” with no extra permit. Anything else, such as “Bay Area Family Medicine Medical Corporation,” requires a fictitious name permit from the Medical Board’s Division of Licensing.9California Legislative Information. California Business and Professions Code 2415
Fictitious Name Permits
The Medical Board will issue a fictitious name permit if the applicant holds a current physician’s license, the practice is wholly owned and controlled by the applicant or applicants, and the proposed name is not deceptive, misleading, or confusing.9California Legislative Information. California Business and Professions Code 2415 Practicing under a fictitious name without this permit counts as unprofessional conduct under Business and Professions Code Section 2285.10Medical Board of California. Fictitious Name Permit
The application requires a non-refundable $70 processing fee, and the permit must be renewed every two years for $50.11Medical Board of California. Frequently Asked Questions – Fictitious Name The permit comes with a required notice that must be displayed in a location visible to patients and staff at each place of business.9California Legislative Information. California Business and Professions Code 2415
Filing the Articles of Incorporation
The founding document is the Articles of Incorporation for a Professional Corporation, filed with the California Secretary of State on the form specific to professional corporations. It requires:
- The full legal corporate name, complying with the naming rules above.
- A purpose statement declaring that the corporation’s purpose is to practice medicine, which distinguishes it from a general-purpose business corporation.
- The number of authorized shares, commonly set at a round figure like 1,000 or 10,000.
- An agent for service of process, either an individual residing in California or a registered corporate agent, with a California street address. P.O. boxes are not accepted.
The Secretary of State will reject filings with technical errors or missing information. The purpose statement matters especially, because a medical corporation that fails to limit its stated purpose to the practice of medicine may face later challenges to its professional corporation status.
Filing Fees and Processing Times
The standard filing fee for Articles of Incorporation is $100. For faster processing, the Secretary of State offers three tiers of expedited service for in-person filings at the Sacramento office: 24-hour service for $350, four-hour service for $500 (requires preclearance approval), and same-day service for $750 with documents in by 9:30 a.m.12California Secretary of State. Business Entities Fee Schedule
Online submissions through the Secretary of State’s BizFile portal typically process within a few business days. Mailed documents can take several weeks. Once approved, the corporation receives a certified copy of the articles and a unique entity identification number.
Ongoing Compliance
Forming the corporation is the start. California imposes recurring obligations that must be met to keep the entity in good standing.
Statement of Information
Within 90 days of incorporation, the corporation must file a Statement of Information (Form SI-550) with the Secretary of State. The filing fee is $25, and the form requires current information about the corporation’s officers, directors, and business address. The filing must be updated annually thereafter.13California Secretary of State. Statements of Information Filing Tips
Failing to file on time can trigger penalties from the Franchise Tax Board and eventual suspension or forfeiture of the corporation’s status.13California Secretary of State. Statements of Information Filing Tips A suspended corporation loses its right to defend lawsuits, enforce contracts, or legally conduct business under its name.
Annual Franchise Tax
Every corporation doing business in California must pay a minimum franchise tax of $800 per year to the Franchise Tax Board. Corporations incorporated on or after January 1, 2020, are exempt from this minimum tax in their first taxable year.14State of California Franchise Tax Board. Corporations Starting in year two, the $800 minimum applies regardless of revenue. Corporations with higher taxable income pay the greater of $800 or the calculated tax based on California’s corporate rate.
The franchise tax is owed even if the corporation earns nothing, and failure to pay triggers its own suspension process through the Franchise Tax Board, separate from the Secretary of State’s Statement of Information requirements.
S-Corporation Tax Election
By default a California professional medical corporation is taxed as a C corporation, meaning the corporation pays income tax on its profits and shareholders pay tax again on distributions. Many physician-owners elect S-corporation status to pass income through to their individual returns instead.
The election is made on IRS Form 2553. The deadline is no more than two months and 15 days after the beginning of the tax year in which the election should take effect, or at any time during the preceding tax year.15Internal Revenue Service. Instructions for Form 2553 For a newly formed corporation, the tax year begins on the earliest date the corporation had shareholders, had assets, or began doing business. Missing the deadline pushes the election to the next tax year.
California recognizes the federal S-corporation election but still imposes a reduced-rate franchise tax of 1.5 percent on net income, with the $800 minimum. The state does not fully eliminate the entity-level tax the way the federal system does, so California S-corp savings are real but smaller than on the federal side.
What the Corporate Structure Does and Doesn’t Protect
A medical corporation insulates shareholders from the corporation’s ordinary business debts, such as office leases, equipment loans, and vendor bills. It does not shield a physician from personal liability for their own malpractice. Every physician in a professional corporation remains personally liable for their own negligent acts and professional misconduct, and a plaintiff can pursue personal assets regardless of corporate status. California law generally does not hold one physician-shareholder personally liable for another shareholder’s professional negligence unless the physician was directly supervising the negligent care, though the corporation’s own assets remain at risk for the acts of its employees and shareholders.