How to Comply with California’s Medical Board Requirements for Professional Corporations

Forming a Professional Corporation (PC) is the only legally recognized way for medical professionals in California to operate a medical practice while complying with state laws and Medical Board regulations. The Medical Board of California (MBC) enforces strict corporate, licensing, and operational requirements to ensure that medical practices are owned and operated only by licensed physicians and comply with state healthcare laws.

Failing to comply with California’s Medical Board requirements can result in fines, suspension of medical licenses, corporate dissolution, and legal liability. Understanding these requirements is essential for physicians, dentists, chiropractors, and other healthcare professionals who want to establish a compliant and legally sound medical corporation.

This guide outlines the key steps to comply with California’s Medical Board requirements for Professional Corporations and helps medical professionals navigate licensing, ownership, corporate structure, and regulatory compliance.

1. Understanding the Role of the Medical Board of California

The Medical Board of California (MBC) regulates the licensing, operation, and compliance of medical professionals and professional corporations. It ensures that:

  • Only licensed physicians own and operate medical practices.
  • Medical decisions are made by physicians, not corporations or investors.
  • Healthcare providers adhere to ethical and legal standards.

Every medical practice structured as a Professional Corporation (PC) must register with the MBC and follow its corporate and licensing guidelines.

2. Forming a Compliant Professional Corporation

Choosing the Right Business Structure

A Professional Corporation (PC) is the only legal structure allowed for medical practices in California. Limited Liability Companies (LLCs) cannot be used for medical practices due to Corporate Practice of Medicine (CPOM) laws.

To form a PC, medical professionals must:

  • File Articles of Incorporation with the California Secretary of State.
  • Ensure the corporation name includes “Medical Corporation” or “Professional Corporation” as required by the MBC.
  • Appoint a licensed physician as the sole shareholder or majority owner.

Ownership and Shareholder Requirements

The Medical Board of California mandates that only licensed physicians (MDs and DOs) can own a medical corporation. Other healthcare professionals, such as nurse practitioners or physician assistants, may hold minority ownership but cannot control the corporation.

Failure to comply with these ownership rules may result in corporate dissolution and legal penalties.

3. Filing and Licensing Requirements

Registering with the Medical Board

Once a PC is formed, it must be registered with the Medical Board of California. The medical practice must:

  • Obtain a Professional License for the Corporation from the MBC.
  • Ensure all physicians, nurses, and staff are properly licensed.
  • Maintain compliance with MBC’s rules on medical practice ownership and corporate governance.

Obtaining an Employer Identification Number (EIN)

The corporation must apply for an EIN from the IRS to handle:

  • Business tax filings.
  • Employee payroll and benefits.
  • Business banking and financial transactions.

Filing a Statement of Information

Within 90 days of incorporation, the Professional Corporation must submit a Statement of Information (SI-200) to the California Secretary of State, updating:

  • Business address.
  • Officers and directors of the corporation.
  • Registered agent for service of process.

Failing to file this document can result in penalties and administrative suspension.

4. Maintaining Compliance with the Medical Board

Corporate Governance and Bylaws

The Medical Board of California requires every medical corporation to have bylaws that outline:

  • Shareholder rights and responsibilities.
  • Rules for hiring and terminating medical staff.
  • Medical decision-making authority.
  • Compliance with state and federal healthcare regulations.

A lack of formal corporate governance may lead to liability issues and regulatory violations.

Scope of Practice and Supervision

The Medical Board enforces strict scope of practice and supervision rules, including:

  • Only licensed physicians can make medical decisions.
  • Non-physicians, such as investors or business administrators, cannot interfere with medical care.
  • Nurse Practitioners (NPs) and Physician Assistants (PAs) must work under direct physician supervision.

Medical practices must follow California’s standard of care to avoid legal liability and malpractice claims.

Patient Privacy and HIPAA Compliance

Professional Corporations must comply with HIPAA (Health Insurance Portability and Accountability Act) regulations, including:

  • Maintaining secure patient records.
  • Implementing data security policies to prevent unauthorized access.
  • Obtaining patient consent for treatment and data sharing.

HIPAA violations can result in significant fines and legal consequences.

5. Avoiding Corporate Practice of Medicine (CPOM) Violations

The Corporate Practice of Medicine (CPOM) doctrine prohibits non-physicians from controlling medical decisions. To avoid violations, medical corporations must:

  • Ensure only licensed physicians own and operate the practice.
  • Prohibit investors, business managers, or non-physician entities from controlling medical services.
  • Structure any Management Services Organization (MSO) contracts carefully to avoid CPOM violations.

Non-compliance with CPOM laws can lead to regulatory action, financial penalties, and corporate dissolution.

6. Insurance and Risk Management

Malpractice Insurance

Every medical professional and medical corporation must have malpractice insurance to cover:

  • Medical errors and negligence claims.
  • Patient injury lawsuits.
  • Compliance investigations.

Business Liability Insurance

Medical practices should also carry:

  • General liability insurance for business operations.
  • Workers’ compensation coverage for employees.
  • Cyber liability insurance for patient data protection.

Adequate insurance coverage protects the practice from financial loss and legal liability.

7. Common Mistakes to Avoid When Forming a Medical Corporation

  • Allowing non-physicians to own or control the practice – Violates CPOM laws.
  • Failing to register with the Medical Board of California – Leads to legal and financial penalties.
  • Not maintaining proper corporate bylaws and governance – Can result in disputes and regulatory audits.
  • Overlooking HIPAA compliance – Leads to patient privacy violations and fines.
  • Improperly structuring MSO agreements – Can result in CPOM violations and business shutdowns.

By ensuring full compliance with Medical Board regulations, healthcare professionals can operate a legally sound and successful practice.

How We Can Help

At KMSD Law, we specialize in helping physicians and healthcare professionals establish and maintain legally compliant Professional Corporations in California. Our legal team provides:

  • Professional Corporation formation and registration with the Medical Board of California.
  • Corporate governance and compliance support to avoid legal risks.
  • CPOM and regulatory compliance guidance to prevent violations.
  • Business contracts, shareholder agreements, and MSO structuring.
  • Legal representation in case of audits, compliance disputes, or licensing board issues.

We offer free case consultations to help medical professionals navigate the legal complexities of forming and running a compliant Professional Corporation.

Contact KMSD Law today to ensure your medical practice meets all legal requirements and operates with full regulatory compliance.