Launching your own medical practice gives you control over your patient care philosophy, your team, and vision to mentor younger physicians. That’s exactly why our client, Dr. Marcus Lee, an internal medicine physician, decided to establish his own clinic.

So, he came to us asking about the basics: how to form a professional medical corporation in California. This guide will walk you through every step we went through to turn Dr. Lee’s vision into a compliant medical private practice built for long-term stability.

The Turning Point That Led Dr. Lee to Start His Own Medical Corporation

Working as part of a large medical group gave him a clear view of how California healthcare operates. It also highlighted what he felt was missing: the independence to run a practice shaped by his own patient-care philosophy.

He wanted more than a steady paycheck. Marcus imagined a welcoming clinic where he could build long-term relationships, hire a trusted team, and eventually mentor younger physicians.

But he also knew that setting up the business properly was just as important as providing excellent medical care. Mistakes in choosing the right business structure or failing to comply with California’s strict rules for doctors could put both his license and his financial security at risk.

Worried about the pitfalls, he reached out after a trusted colleague — another California physician we had recently helped — referred him. That personal recommendation gave Marcus confidence that someone who truly understood the regulatory and practical challenges could help.

When he called, his questions were practical and urgent: “What type of entity is best for a physician in California? What are the ownership rules? How do taxes work? What steps do I need to take, and in what order?”

In short, Marcus had clinical skills and vision. What he needed was a clear, legally sound roadmap to turn that vision into a compliant, long-term practice — which is exactly where we started, step by step.

What Is a Professional Medical Corporation?

Before getting into the step-by-step process of forming a medical corporation, it helps to know what makes this type of entity unique.

A professional medical corporation is a special business structure authorized under the Moscone-Knox Professional Corporation Act. It allows licensed physicians and certain other healthcare professionals to practice medicine within a legally recognized corporation while maintaining compliance with California physician law.

Forming a professional medical corporation offers physicians meaningful advantages:

• Liability protections by separating business obligations and personal assets
• A more efficient tax structure through physician S-Corp election
• A professional image that reassures patients and partners alike

Understanding how to form a professional medical corporation in California gives you a better idea of why setting it up correctly is very important. When done right, it becomes both your legal foundation and your vehicle for long-term independence.

Step 1: Choose Your Legal Name and Apply for a Fictitious Name Permit (FNP) 

For Dr. Lee, branding mattered. He wanted his clinic’s name to reflect warmth and professionalism — something beyond “Marcus Lee, M.D., Inc.” But this namestyle is exactly what California physician law requires. 

Naming Rules for California Medical Corporations 

According to the current California Code of Regulations, Title 16 § 1344, a professional medical corporation’s legal name is restricted to the name or surname of a physician-shareholder. The name must also include the word or abbreviation of either “corporation” and “incorporated” (California Corporations Code § 202[a]). 

Branding with Fictitious Business Name 

The good news is there’s a legal workaround! We advised Dr. Lee to apply for a Fictitious Name Permit (FNP) through the Medical Board of California and pay the $70 processing fee. Physicians with FNP approved by the Board can then use a community-facing name like “Wellness Internal Medicine Group” while still complying with legal requirements. 

Step 2: File the Articles of Incorporation with the California Secretary of State 

Every California professional medical corporation begins with one critical document: the Articles of Incorporation filed with the Secretary of State.  

Required under the Moscone-Knox Professional Corporation Act (CA Corp Code § 13400-13410), these Articles declare your professional purpose and create a legal boundary between your personal and business assets. 

When we drafted the Articles for Dr. Lee’s medical corporation, we clearly stated the business’s professional purpose, which is the practice of medicine. 

Once they were filed and accepted by the California Secretary of State, his practice officially became its own entity protected by law, compliant with state regulations, and ready for business. 

Step 3: Draft Corporate Bylaws and Shareholder Agreements 

Once your corporation exists on paper, it needs internal rules and structure that keeps operations fair, compliant, and clear. This is where your corporate bylaws and shareholder agreements will define important matters such as: 

• Guidelines for shares ownership (e.g. who can own shares) 
• Rules on who can be appointed as director and officers, according to CA Corp Code § 13403 
• Restrictions on transfer of shares, governed by CA Corp Code § 13407 
• How to add corporate partners in the future 

We made sure that Dr. Lee’s bylaws stated that licensed physicians must hold at least 51% of the total shares in his medical corporation. Then we advised him on who could hold minority shares (not exceeding 49% of the total shares), such as registered nurses, licensed psychologists, or licensed physician assistants, according to CA Corp Code § 13401.5 (a). 

We also advised Dr. Lee to conduct the following: 

• Hold an initial meeting of directors and shareholders. 
• Issue stock certificates (or electronic records) reflecting ownership percentages. 
• Maintain copies of all professional licenses in your corporate records. 
• Record meeting minutes and resolutions to document corporate activity. 

These documents and corporate formalities are more than just a requirement. With rules laid out and records well-documented, Dr. Lee has peace of mind that he has control over the practice while keeping opportunities open for expansion and future collaboration.

Step 4: Obtain an EIN and Open a Business Bank Account 

With the corporation’s rules now set on paper, the next thing that Dr. Lee needed was to set up the financial side of the business. This is where we helped him obtain an Employer Identification Number (EIN) from the IRS before opening a business bank account. 

This step is straightforward but it’s crucial to clearly establish the financial separation between your personal assets and business finances. 

We also introduced him to banking partners experienced in working with medical practices, so he could open an account designed for professional corporations. 

Step 5: Elect S-Corporation (S-Corp) Tax Status for Your Medical Corporation 

By default, professional corporations are taxed as C-corporations—unless they make an election to be treated as an S-corporation, subject to IRS approval. 

What Is an S-Corporation and Should You Choose This Tax Status? 

After hearing about “physician S-Corp status” from colleagues, Dr. Lee asked how it actually works. We explained that electing S-Corp status allows a professional corporation to be taxed as a pass-through entity.  

In other words, the corporation’s profits and losses flow through to the shareholders’ personal tax returns, instead of being taxed separately at the corporate level, effectively avoiding double taxation. 

Like many physicians, Dr. Lee wanted to optimize his tax structure while staying compliant. By electing S-Corporation status, he was able to lower his self-employment tax burden while maintaining the same legal protections his professional corporation provides. 

Step 6: Meet California Medical Board Requirements for Your Corporation 

Forming a corporation is only half the journey because physicians and California medical corporations are tightly regulated — for a good reason. So we made sure that Dr. Lee’s new corporation meets several Medical Board requirements, including: 

• File for a Fictitious Name Permit so he can advertise with a compliant brand name. 

• Ensure that only the allowed licensed professionals by law can be shareholders. 

• Verify that appointed corporate officers and directors align with Corporations Code and Board regulations. 

For Dr. Lee, we handled each filing, ensuring that his private practice stayed in good standing and free from compliance risks. 

Step 7: Maintain Ongoing Compliance with State and Medical Board Rules 

With the legal and financial foundations in place, we made ensure Dr. Lee also understood that compliance isn’t a one-time task. Forming the corporation was just the beginning and that ongoing compliance is what will keep his private practice in good standing with the Medical Board of California and the Secretary of State. 

We advised Dr. Lee to: 

• Hold annual shareholder and director meetings and make sure to record and store minutes. 
• File state and federal tax returns on time. 
• Update the Secretary of State and Medical Board for any changes to the corporation’s office address or fictitious name. 
• Keep a compliance calendar to track renewals and filings. 

These steps ensure the corporation continues to operate legally, protect liability limits, and remain eligible for professional practice in California. And when physicians commit to routine compliance, you can focus on what truly matters: patient care. 

Common Mistakes and Legal Risks When Forming a Medical Corporation 

Dr. Lee was surprised to learn how easily an improperly formed entity can cause major problems. That’s why during our consultation, we made sure to discuss with him the risks that come with not fully understanding how to form a professional medical corporation in California​. 

Some common pitfalls we emphasized were: 

• Violating the Corporate Practice of Medicine Doctrine by allowing unlicensed ownership. 
• Improper ownership structure by exceeding the 49% non-physician share limit. 
• Missing the S-Corp filing deadline. 
• Liability exposure due to poorly written bylaws and shareholder agreements or missing records. 

Aside from pointing out these pitfalls, we helped Dr. Lee build safeguards in his corporation’s formation documents to ensure these risks were avoided and provided continuous support with annual compliance reviews. 

FAQs on How to Form a Professional Medical Corporation in California​ 

Who can own shares in a California medical corporation? 

California physician law states licensed physicians must own at least 51% of the corporation’s total shares. The Moscone-Knox Professional Corporation Act lists other licensed professionals who may own up to 49% shares, including registered nurses, psychologists, physician assistants, or optometrists. 

Can a non-physician own part of a professional medical corporation? 

No, non-physicians cannot be major or minor shareholders of a medical corporation. Individuals who don’t hold a professional license, as listed in CA Corp Code § 13401.5, can only be involved in the administrative operations of a medical corporation. But they are prohibited from owning any corporate shares. 

Do physicians need a fictitious name permit? 

It depends. If you want to establish a more unique brand for your private practice, make sure to secure a Fictitious Name Permit (FNP) from the Medical Board of California before advertising or operating under a trade name. 

Do I need a special certificate to operate my corporation? 

No, unlike some other professions, California physicians do not need a separate certificate of registration once the corporation is formed. Compliance is maintained by following rules set by the Medical Board of California and updating any Fictitious Name Permits (FNPs) as needed. 

How do I notify the Medical Board if my office moves? 

If you have filed a Fictitious Name Permit, you must file a Change of Address Form with the Medical Board. Otherwise, a simple address update with the Secretary of State is sufficient. 

When should I form my corporation if I’m opening next year? 

Forming your medical corporation early allows time to secure leases, financing, and permits but doing so too early can create unnecessary tax filings. We help clients find the perfect timing for filing based on their plans and timelines. 

What are the tax benefits of S-Corp election? 

For professional corporations that elect S-Corp tax status, the income can be split between salary and dividends. This helps reduce self-employment tax obligations while keeping you IRS-compliant. Additionally, S-Corp businesses are treated as a pass-through entity, allowing them to avoid double taxation. 

Build Your California Medical Practice with Confidence 

Our client’s journey mirrors that of many California physicians: talented, driven, and ready for independence. But the complicated legal process can temper such potential. Dr. Lee made the right move by starting with learning how to form a professional medical corporation in California and seeking help from business lawyers in building his private practice career. 

Ready to start your own medical corporation but not sure where to start? We can guide you through every step, allowing you to build a practice that reflects your values while staying fully compliant with California physician law. 

Call the Law Offices of Gale & Vallance at (714) 634-4838 or fill out this Incorporation Attorney contact form to schedule your consultation.