Who is allowed to own a medical practice

The sentence the doctrine is built on

California states the rule in one line, in the corporations article of its medical practice act. Corporations and other artificial legal entities shall have no professional rights, privileges, or powers.

That sentence is the statutory root of what commentators call the corporate practice of medicine doctrine. The phrase itself is a label rather than a heading in the code; what the code contains is the denial of professional powers to entities.

The same section carries one narrow exception. The licensing division may, in its discretion and after investigation and review of documentary evidence it requires, grant approval of the employment of licensees on a salary basis by licensed charitable institutions, foundations, or clinics, if no charge for professional services rendered to patients is made by that institution, foundation, or clinic.

The exception is conditioned on the absence of a charge to patients for professional services, which is why it does not describe a commercial arrangement.

Alongside it sits the unlicensed practice offence. California makes it a public offence for any person to practise, attempt to practise, or advertise or hold themselves out as practising any system or mode of treating the sick or afflicted, or to diagnose, treat, operate for, or prescribe for a listed range of conditions, without a valid, unrevoked and unsuspended certificate. A separate subdivision makes it an offence to conspire with, aid, or abet another to do so.

The vehicle the law actually provides

A denial of professional powers to corporations would be unworkable on its own, so California supplies a separate corporate form.

Its Corporations Code defines professional services as any type of professional services that may lawfully be rendered only pursuant to a licence, certification or registration authorised by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.

A professional corporation is defined as one organised under the general corporation law that is engaged in rendering professional services in a single profession, subject to a named exception, pursuant to a certificate of registration issued by the governmental agency regulating the profession, and that designates itself as a professional corporation as required by statute. The same subdivision then relieves corporations rendering services by persons licensed by a long list of named health boards, including the Medical Board of California and the California State Board of Pharmacy, from having to obtain that certificate of registration.

The definition that does the work is licensed person: any natural person duly licensed under those acts to render the same professional services as are or will be rendered by the professional corporation of which the person is, or intends to become, an officer, director, shareholder or employee.

The code also defines a disqualified person, meaning a licensed person who for any reason becomes legally disqualified, temporarily or permanently, to render the professional services that the corporation of which they are an officer, director, shareholder or employee is or was rendering. The category exists because the statute has to say what happens when a shareholder loses the licence that qualified them to hold shares.

The minority stake the statute allows

The structure is not purely single-profession, and the exception is quantified.

California's Corporations Code permits a list of licensed persons to be shareholders, officers, directors, or professional employees of designated professional corporations, so long as the sum of all shares owned by those licensed persons does not exceed forty-nine percent of the total shares, and so long as the number of those persons owning shares does not exceed the number of persons licensed by the agency regulating the designated corporation.

For a medical corporation the listed professions include licensed doctors of podiatric medicine, licensed psychologists, registered nurses, licensed optometrists, licensed marriage and family therapists, licensed clinical social workers, licensed physician assistants, licensed chiropractors, licensed acupuncturists, naturopathic doctors, licensed professional clinical counsellors, licensed physical therapists, licensed pharmacists, licensed midwives and licensed occupational therapists.

The section adds that it does not limit employment by a designated professional corporation to only the listed professionals, and that any person duly licensed under the healing arts division, the Chiropractic Act, or the Osteopathic Act may be employed to render professional services by such a corporation.

Every person in that list is a licensed person. The forty-nine percent allowance widens which licence a shareholder may hold; it does not create a route for an unlicensed shareholder.

Titles are not the same as powers

California states the shareholder rule for medical corporations in its medical practice act as well, and then adds a sentence that is frequently the operative one in practice.

Except as provided in the named Corporations Code sections, each shareholder, director and officer of a medical or podiatry corporation, other than an assistant secretary or an assistant treasurer, shall be a licensed person as defined in the Corporations Code.

The same section then provides that nothing in it shall be construed as prohibiting a non-licensed person from using the business titles of executive vice president, chief executive officer, executive secretary, or any other title denoting an administrative function within the professional corporation.

That is a deliberate separation of the administrative from the professional. A title denoting an administrative function is available to an unlicensed person; the shareholder, director and officer positions the section names are not.

The section also carries a structural allowance for holding arrangements: notwithstanding the listed provisions, a shareholder of a medical corporation rendering professional services may itself be a medical corporation with only one shareholder, who must be a licensed person, and the shareholder of that second corporation may be an officer or director of the first.

One state protects the employing company instead

Virginia writes its position from the opposite direction, in the section that lists unlawful acts for professions and occupations generally.

That section makes it unlawful to practise a profession or occupation without holding a valid licence, to use a protected designation without being certified or licensed, to perform any act restricted by statute or regulation to licence holders without being licensed, and to violate any statute or regulation governing the practice of a regulated profession.

It then contains a subsection that says what the rest of it does not do. Nothing in the section, nor in four named sections of the Virginia code, shall be construed to prohibit or prevent an entity of a type listed in two named provisions, which employs or contracts with an individual licensed by a health regulatory board, from practising or engaging in the practice of a profession for which that individual is licensed, from providing or rendering professional services related to it through the licensed individual, or from having a legitimate interest in enforcing the terms of employment or its contract with the licensed individual.

The last of those three limbs is the one worth reading twice. Virginia expressly preserves an employing entity's legitimate interest in enforcing the terms of its employment or contract with a licensed individual, which is a different starting point from a blanket denial of professional powers to entities.

What neither state does is remove the individual licence from the centre of the arrangement. California's unlicensed practice offence reaches a person who conspires with, aids, or abets another to practise without a certificate, and Virginia's unlawful acts section reaches any person, partnership, corporation, or other entity that performs an act restricted to licence holders. In both, the entity structure sits around a licensed person rather than replacing one, and whether any particular arrangement satisfies a given state is a question about that entity, decided by that state, and not something a description of the statutes can answer.

Sources

Each document below is named as it names itself, with the date printed on that document rather than the day it was read.

1. California Business and Professions Code section 2400, denying professional rights, privileges and powers to corporations and other artificial legal entities — California Legislative Information, California Legislature, 1980
2. California Business and Professions Code section 2408, licensed shareholders, directors and officers of a medical corporation, and administrative titles — California Legislative Information, California Legislature, 1985
3. California Business and Professions Code section 2052, the offence of practising, attempting to practise, or holding out as practising without a certificate — California Legislative Information, California Legislature, April 2011
4. California Corporations Code section 13401, definitions of professional services, professional corporation, licensed person and disqualified person — California Legislative Information, California Legislature, January 2024
5. California Corporations Code section 13401.5, the forty-nine percent minority ownership allowance and the professions listed for a medical corporation — California Legislative Information, California Legislature, January 2024
6. Code of Virginia section 54.1-111, Unlawful acts, including subsection F preserving an employing entity's position — Virginia Law, Virginia General Assembly, 2019