Who can be a shareholder/Officer/Director in a MEDICAL CORPORATION?

In San Diego, California the creation of a medical corporation to practice can offer several legal benefits over the practice as a sole owner. But it is a difficult procedure to incorporate a professional corporation which requires careful observance of state and federal regulations. You need to figure out who can be the shareholders or officers and directors of such a medical corporation amongst other legal compliances. The Moscone-Knox Professional Corporation Act (Corp C §§13400–13410), and the basic requirements of the California Corporations Code and regulations promoted by the Medical Board of California are the major legal compliances that a medical corporation must follow.

Some of the benefits that a San Diego medical corporation may provide includes:

• Legal protection – A professional medical corporation permits the separation of personal assets from commercial assets, restricting personal responsibility against claims and creditors. Although a professional corporation cannot protect a physician from claims for abuse, if they are formed and functioned properly, it can protect the personal assets of a physician from claims that stem from the misuse of fellow workers, certain commercial claims, and employee-related proceedings. This is particularly crucial for a doctor who practices his own medicine.
• Business Credit – Building corporate credit under a competent medical corporation might help in forming a partnership or selling your corporation. The requirement for personal assurances can also be avoided.
• Taxation – Profits and losses can be transferred to shareholders by choosing your medical corporation as an S-Corp, and thus help you in avoiding double taxation. S-Corp’s also decreases shareholder self-employment taxes.
• Fringe benefits – A professional medical corporation also has access to medical care and retirement schemes.

A medical corporation in California can only provide medical services. Professionals should generally be licensed, in medical practice, as shareholders of a California medical corporation (California Corporations Code §13401(b), (d)). However, other licensed professionals are nonetheless eligible to be the owners, executives, directors, or employees of a medical corporation if the shares held by those other members of comparable professions own no shares in the medical corporation totaling more than 49% and the licensed physician stockholders are larger than the non-doctoral owners.

The following are the authorized professionals that can be shareholders and directors of California professional medical corporations:

• Licensed podiatric medicine physicians.
• Licensed psychologists.
• Registered nurses.
• Licensed optometrists.
• Licensed family therapists and certified marital therapists.
• Licensed clinical social workers.
• Licensed assistants to the physician.
• Licensed chiropractors.
• Licensed acupuncturists.

Medical corporations in San Diego with only one shareholder must have only one director (who must be that shareholder). This shareholder also has to function as the corporation chairman and trustee (California Corporations Code §13403). A medical corporation with only two stockholders should only have two directors (who must be those shareholders). The duties of President, Vice President, Secretary, and Treasurer of such corporations can be filled by both owners (California Corporations Code §13403).

After the shareholders and board members have been appointed various measures need to be taken to safeguard and maintain your medical corporation’s compliance obligations:

• Shareholders’ Meetings – California requires holding of yearly shareholder meetings for medical corporations. The Chairperson of the corporation must present various topics on the agenda and there is voting done by shareholders during these meetings. Agenda items may include appointing directors for the board of directors, removing managers, voting on shareholder proposals and activities which require shareholder authorization, for example, mergers, asset sales, or dissolution.
• Board of Directors Meetings – Board meetings focus on the administration of a professional medical corporation, for the board of directors is responsible. Typically, managers include establishing broad corporate organizational goals and objectives, selecting, supporting, and evaluating CEO performance, ensuring the sufficiency of financial resources, and adopting the yearly budget in the meeting’s agenda.
• Proceedings – Minutes should be kept for both shareholders’ meetings and the board of directors. Minutes are crucial, as the decisions adopted at a meeting are used as an official report.
• Information Statement – California requires medical corporations to file an information statement with the Secretary of State yearly. The Secretary of State’s website (https://businessfilings.sos.ca.gov/) can help you accomplish this at no cost.