Investing in a corporation involves money, time, and effort. It is not as simple as just putting in your money and then getting your share of the profit. Owners or shareholders must always remember that for every decision being made and every step being done, there are legal aspects that must be taken into consideration.

It is a common mistake for businesspersons in California to start investing in a corporation without even consulting an expert small business lawyer. Take for example the case of one of our clients who called us because of a serious legal concern involving a medical corporation.

He is a 20% shareholder in a medical corporation with a doctor, and even ready to invest more. But he is a non-physician or any other medical-related professional. He is purely a businessman who just wants to provide his administrative services to the corporation.

The question now is, “Can a non-physician own a medical practice in California?”

Quick Answer: Can a Non-Doctor Own a Medical Practice?

The answer to this is NO! Well, mostly no. Only certain licensed health professionals can be owners or partners in a medical practice in California.

A short sum could be to say only certain doctor-level certified professionals are allowed to own the medical corporation (51% or more). However, other certain licensed medical professionals are allowed to own up to 49% but not the majority.

Either way, business individuals and non-medical businesses are not on either list. This means they are not permitted to own medical practice in California under the Corporate Practice of Medicine (CPOM) doctrine.

Why California Bans Non-Physician Ownership of Medical Practices?

Can a Non-Physician Own a Medical Practice? Here’s What the CPOM Says

The Corporate Practice of Medicine (CPOM) doctrine says that only physicians and other certain healthcare-related professionals may become shareholders or partners in a medical corporation. Why is this so?

The reason behind this law is ethical: medical professionals (and particularly physicians) are bound to a code of ethics and protocols–a critical part of their profession. You can take a look at The Code of Medical Ethics of the American Medical Association here for more insight into physician’s ethical and moral responsibility within their fields and how this code has changed over the years.

Protected Medical Decisions

Several states in the US, including California, have adhered to regulations set by the CPOM, which clearly addresses corporations/private equity owning medical practices in various forms.

The reason being that an unlicensed person must not interfere with the healthcare judgment and decisions of the physician, as stated under California Business & Professions Code Section 2400 and related statutes. These include but are not limited to:

• The working hours of a physician
• The number of patients to accommodate in an hour
• Hiring or firing employees concerning the clinical responsibilities
• Procurement of medical equipment and supplies
• Details of the insurance contracts
• Billing process for patients

Essentially, these laws are put in place to protect the physician and the patient from competing concerns between a patient’s needs and interests of the business. The IRS even cites Painless Parker v. Board of Dental Exam from 1932 as a sample case study.

You can also read more about the key rules in owning a professional medical corporation through the Medical Board of California.

Who Can Legally Own a Medical Practice in California?

As we mentioned, only certain licensed medical professionals can legally own a medical corporation under California’s Moscone-Knox Professional Corporation Act. Let’s break down who can be major shareholders (referencing greater than 50%) and who can own 49% or less of a medical corporation.

Professionals Who Can Own 51% or More

Here is a list of licensed medical professionals who can legally own and be a major shareholder of a medical corporation in California:

• Licensed physicians and surgeons
• Licensed doctors of podiatric medicine

These professionals must be licensed in California and maintain their licenses in good standing. They have the authority to make all clinical decisions and must retain majority control of the Professional Medical Corporation.

Allied Health Professionals Who Can Own Up to 49%

Here is a list of licensed “allied” medical professionals who can legally own up to 49% of a medical corporation, according to the California Corporations Code 13401.5:

• Licensed psychologists
• Licensed optometrists
• Licensed naturopathic doctors
• Licensed physician assistants
• Registered nurses
• Licensed chiropractors
• Licensed acupuncturists
• Licensed marriage and family therapists
• Licensed clinical social workers
• Licensed professional clinical counselors

Similarly, all of these professionals must be licensed in California and their combined ownership cannot exceed the physician ownership percentage.

Can a Non-Physician Businessperson Own Medical Practice and ONLY Handle Administrative Tasks?

There is no doubt as to the capabilities of the businessman. He can provide all the administrative services for the corporation including how to do the billing, how to take care of the insurance, run the staffing system, and all the other administrative tasks.

But the law clearly says that because he is:

1. Unlicensed
2. A non-medical person

So the laws are clear that he cannot be an owner of a medical corporation and share the profit made from the physician’s medical practice.

We mentioned that he is a 20% shareholder in this medical corporation. He already invested $25,000 into the corporation, and he was even planning to invest another $25,000!

As a businessperson, you do not want to be in this kind of situation where you have already invested only to realize later that you cannot be an owner of the corporation! This is such a total waste of money, time, and effort!

The MSO Solution: How a Non-Physician Can Legally Get Involved in a California Professional Medical Corporation?

Our client didn’t want to lose his investment (over $25,000) in the company, and he still wanted to assist with the business and administrative work. After receiving the LegalZoom paperwork, reviewing his investments, and discussing the role he wanted to play in the company, Incorporation Attorney was able to find a solution.

The best solution in this scenario was that the non-physician businessman and the medical doctor each establish their own companies.

Our client, the businessman, would form an MSO (Management Service Organization). He could then be contracted out to render services for the doctor’s medical corporation.

This setup allows the doctor’s medical corporation to pay the businessman’s management company but does not insinuate that he is an owner of a medical corporation.  This way, our client could establish a business relationship with the medical doctor legally. It may not have been how the businessman wanted (to be a legal owner), but it was a legal way they could invest in the company together.

What Can a Non-Physician Do Through MSO for a Medical Corporation?

The answer to the question “Can a non-physician own a medical practice?” is firm and non-negotiable. But there are legal alternatives that still allow for meaningful business involvement. This means our client can still do business without going against the law and the ethical reasons behind rules on how to form a professional medical corporation in California.

Through an MSO, here are the common responsibilities you can legally handle for a medical corporation:

• Administrative operations: Front desk management, scheduling, and patient communications
• Billing and collections: Overseeing insurance claims and payment processing
• HR and staffing for non-clinical roles: Recruiting, payroll, and employee compliance
• Marketing and branding: Managing online presence, ads, and community outreach
• Financial services: Bookkeeping, budgeting, and non-clinical financial planning
• Facility and equipment management: Maintaining the office and procuring non-medical supplies

Why Our Client Didn’t Know He Can’t Own a Professional Medical Corporation in California

It is a very common experience for us here at Incorporation Attorneys to have people call us after they have gone to Legal Zoom to create the corporations. Some of our clients who have gone to this online legal service provider realize that:

• There is something wrong, but they don’t know what it is.
• They can’t fill out a form because they don’t have some of the necessary information that someone is asking for.
• They don’t know how serious the matter is until they are stuck at some point.

So, they will call us at Incorporation Attorneys, just like what this businessman did.

He told us that he went to Legal Zoom to form the corporation and he just wanted to be certain that everything was in order. He wanted to ensure his investment was secure in this medical corporation.

It’s lucky he cared to check before continuing to run his business, or the government would have been the one telling him of his error. And we can guarantee it wouldn’t have been gentle or low cost.

As he started to unravel certain parts of the corporation, he realized Legal Zoom didn’t explain to him that he cannot own a medical corporation!

Fortunately, he reached out to us before making a costly mistake—and that’s when we helped him explore a legal, practical alternative.

He just didn’t know what he didn’t know, and the internet law firm didn’t explain it!

How We Help Clients Fix Legal Issues in Owning a Professional Medical Corporation

Our expert small business lawyers here at Incorporation Attorneys make sure that our clients completely understand the process, restrictions, and all the legal implications of owning a medical practice in California.

We apply these fundamental steps to help our clients fix this kind of situation:

1. Problem Assessment

• They tell us what the problem is.
• We gather as much information as we could to be certain that we do not miss out even on the simplest detail about the situation that our clients are going through.

2. Legal Analysis

• After we gather all of the necessary information from the client, we will study the problem and consider every legal aspect of the situation carefully.

3. Solution Development

• We do understand how pieces move together in forming and owning a corporation, so we can assure our clients that we give them the best legal advice to protect their interests, rights, and investments.

Frequently Asked Questions: Can a Non-Physician Own a Medical Practice

What is a professional medical corporation in California?

A professional medical corporation in California is a special type of business entity authorized under the California Corporations Code and governed by the Moscone-Knox Professional Corporation Act.

It allows licensed physicians and certain other healthcare professionals to provide medical services through a legally recognized business structure—while complying with strict state regulations.

You can learn more about setting up your professional medical corporation here.

Can a corporation own a medical practice in California?

No, a general corporation cannot own or control a medical practice in California unless it is a professional medical corporation owned by licensed physicians. Under California laws and the Corporate Practice of Medicine doctrine, only licensed medical professionals can make clinical decisions or profit from medical services.

Can a medical doctor be an LLC in California?

Medical practices—or any professional service—are banned from operating as a Limited Liability Company (LLC). In California, professional services must be structured as professional corporations and strictly adhere to the Moscone-Knox Professional Corporation Act.

What services can an MSO provide to a professional medical corporation in California?

MSOs can handle billing, collections, human resources, marketing, financial management, equipment procurement (non-clinical), facility management, and administrative support. They cannot make clinical decisions or control medical aspects of the practice.

Get Help and Legal Advice from Expert Small Business Attorneys

Many people who want to venture into a small business or are in the process of forming a corporation make the mistake of not consulting a small business attorney and end up facing legal problems. As a business owner, you do not want to see any time, opportunity, or money wasted (such as what the business professional above went through).

You can see in this case that the question “Can a non-physician own a medical practice?” has a very straightforward question. But without expert legal advice, our client was on the verge of wasting his investment and facing legal consequences.

The good news is, you can skip that part! California’s legal landscape is complex but with the right help, you can build your business and invest the right way from day one.

Call Incorporation Attorney today to schedule your consultation with our expert small business attorneys!