The Role of Ownership Restrictions in California Professional Corporations

For licensed professionals in California—such as doctors, lawyers, accountants, and architects—forming a Professional Corporation (PC) is a common way to structure a business while ensuring compliance with state licensing regulations. However, unlike regular corporations, California imposes strict ownership restrictions on Professional Corporations.

Understanding who can own shares, the limitations on non-licensed shareholders, and the consequences of non-compliance is critical for professionals looking to start, operate, or invest in a Professional Corporation in California.

This article explains the ownership restrictions of Professional Corporations (PCs) in California, why they exist, and how professionals can structure their businesses legally and efficiently.

1. What Is a Professional Corporation (PC) in California?

A Professional Corporation (PC) is a legally recognized business structure that allows licensed professionals to operate as a corporation rather than as sole proprietors or partnerships.

Key Features of a California Professional Corporation:

  • Only licensed professionals can form and own a PC.
  • Regulated by the California Business and Professions Code.
  • Must comply with the rules of the relevant licensing board (Medical Board, State Bar, etc.).
  • Limited liability protection for business debts and obligations.

Unlike Limited Liability Companies (LLCs) or traditional corporations, a PC is specifically designed for professions where state law mandates that only licensed individuals provide services.

2. Why Does California Restrict Ownership of Professional Corporations?

California enforces ownership restrictions on PCs to:

  • Prevent non-licensed individuals or businesses from influencing professional decisions.
  • Ensure public trust in professional services.
  • Maintain the ethical and legal responsibilities of licensed professionals.
  • Comply with the Corporate Practice of Medicine (CPOM) and similar doctrines that prevent corporate interference in professional services.

These restrictions apply across multiple professional fields, including:

  • Healthcare (Doctors, Dentists, Chiropractors, Optometrists).
  • Law (Attorneys and Legal Professionals).
  • Finance (Certified Public Accountants – CPAs).
  • Engineering and Architecture.

By limiting ownership to licensed professionals within the same industry, California ensures that professional corporations operate with integrity and legal accountability.

3. Ownership Restrictions for Different Professional Corporations

California has specific rules on who can own, manage, and control shares in a Professional Corporation. Below are the key ownership restrictions for various industries:

A. Medical Professional Corporations (Doctors, Dentists, Chiropractors, Optometrists)

  • Only licensed physicians (MDs or DOs) can own a Medical Professional Corporation.
  • Non-physicians cannot own or control the corporation, even if they provide financial investment.
  • Other healthcare professionals (e.g., NPs, PAs, RNs, chiropractors, podiatrists) can hold minority ownership, but the majority must be physician-owned.

Regulated by: California Business and Professions Code §13401.5 and the Medical Board of California.

B. Law Professional Corporations (Attorneys)

  • Only licensed attorneys can own and operate a law firm as a Professional Corporation.
  • Non-lawyers, including business professionals or investors, cannot own shares in a law firm.
  • All officers and directors must be licensed members of the California State Bar.

Regulated by: California Business and Professions Code §13401 and the State Bar of California.

C. Certified Public Accountants (CPA) Professional Corporations

  • At least 51% of shares must be owned by licensed CPAs.
  • The remaining 49% may be held by other licensed professionals, such as attorneys or financial consultants, but not by non-licensed individuals.

Regulated by: California Business and Professions Code §5079 and the California Board of Accountancy.

D. Architecture, Engineering, and Land Surveying Professional Corporations

  • Ownership is typically limited to licensed engineers, architects, or land surveyors.
  • Multi-discipline firms may have shared ownership, but the majority stake must be held by professionals in the regulated field.

Regulated by: California Business and Professions Code §6730, §5536.1, §8710.

4. Can Non-Licensed Individuals Own Shares in a Professional Corporation?

In most cases, non-licensed individuals or corporate entities cannot own shares in a Professional Corporation. However, there are some exceptions:

  • Minority Ownership in Certain Industries – Some healthcare professionals (e.g., chiropractors, nurses) can own a small percentage of a Medical PC, but they cannot control decision-making.
  • Business Investors and MSO Partnerships – While non-licensed individuals cannot own shares, they can participate in the business side of a medical or legal practice through a Management Services Organization (MSO).
  • Estate Ownership in Certain Cases – If a professional shareholder passes away, their estate may temporarily hold ownership until shares are transferred to another licensed professional.

Failure to comply with ownership rules can result in corporate dissolution, regulatory fines, and loss of professional licenses.

5. What Happens If a Professional Corporation Violates Ownership Rules?

Non-compliance with California’s Professional Corporation ownership rules can lead to serious consequences, including:

  • Revocation of Business License – The California Secretary of State may dissolve the corporation.
  • Loss of Professional Licenses – Licensing boards may suspend or revoke professional licenses.
  • Legal Fines and Penalties – State authorities may impose fines for unauthorized ownership.
  • Lawsuits from Patients or Clients – Improper ownership can invalidate malpractice insurance and expose the corporation to litigation.

To avoid these risks, professionals should carefully structure their corporation with legal guidance.

6. How to Ensure Compliance with Ownership Restrictions

To legally establish and operate a Professional Corporation in California, follow these steps:

  • Confirm licensing requirements – Ensure that all owners, directors, and officers hold valid professional licenses.
  • File Articles of Incorporation – Register with the California Secretary of State under the appropriate professional designation.
  • Draft Bylaws and Shareholder Agreements – Clearly define ownership rules, voting rights, and transfer restrictions.
  • Obtain a Professional License for the Corporation – Some industries require the corporation itself to be licensed by a regulatory board.
  • Use a Management Services Organization (MSO) for Non-Licensed Involvement – If non-physicians or business partners want to participate, structure their involvement through an MSO that handles non-clinical administrative functions.
  • Consult a Healthcare or Business Attorney – Legal professionals can help draft compliant corporate structures, shareholder agreements, and MSO contracts.

Proper planning and compliance ensure that your Professional Corporation remains legally protected and operationally successful.

How We Can Help

At KMSD Law, we specialize in forming and structuring Professional Corporations in California while ensuring full compliance with state regulations. Our legal team can:

  • Assist in registering your Professional Corporation with the Secretary of State.
  • Ensure compliance with CPOM and industry-specific ownership laws.
  • Draft bylaws, shareholder agreements, and MSO contracts.
  • Protect your business from regulatory violations and legal disputes.

We offer free case consultations and tailored legal solutions for doctors, attorneys, accountants, and other licensed professionals.

Contact KMSD Law today to ensure your Professional Corporation operates legally and efficiently.