How to Incorporate Doctors

By Roberta Codemo

How to Incorporate Doctors

By Roberta Codemo

State laws vary as to the types of corporate entities that doctors can form. In most states, licensed physicians may form a professional corporation (PC), also called a professional service corp. (PSC), to practice medicine. In other states, physicians may form a professional limited liability company (PLLC) or a standard limited liability company (LLC) so long as the state's licensing authority doesn't prohibit it. Other states allow licensed medical professionals to form a professional association (PA) or limited liability partnership (LLP).

Doctor smiling at older man

Always check with the government agency that regulates businesses, usually the Secretary of State, to determine the requirements for incorporating doctors in your state.

State Governance of Medical Practice

Most states ban what is commonly called the “corporate practice of medicine." Under this doctrine, traditional corps. cannot practice medicine or employ a physician to provide medical services. The doctrine arose over public policy concerns that the interests of a corporation to its shareholders could interfere with the interests of a physician to their patients.

Each state has differing administrative rulings, court opinions, laws, and regulations that address this subject. Some also have exceptions, such as allowing physicians to work for a company so long as there is an agreement that the company does not interfere with the physician-patient relationship. In these instances, the physician is considered an employee of the business.

Each state has also enacted Medical Practice Acts that govern the practice of medicine. The acts were created to protect the public from the unlawful practice of medicine by unqualified individuals. Each state has a medical board who set out the specific requirements individuals must meet to become a doctor.

Professional Corporation

One or more professionals in the same field, such as two physicians who want to incorporate their practice, may form this type of business. Since such entities are regulated by state statute, the requirements for forming a PC vary by state. Every state except West Virginia lets professionals form a PC to provide professional services that a traditional corp. cannot. In West Virginia, physicians may form traditional entities, subject to authorization from their state licensing authority.

Forming this type of entity limits a shareholder's liability for business obligations and protects individual shareholders from the negligence or malpractice of associates. However, it does not protect physicians from liability for their negligence or malpractice, meaning physicians must purchase malpractice insurance to protect themselves from such occurrences.

Statutory Requirements

A PC is formed by filing articles of incorporation with the appropriate state filing body, such as the Secretary of State's office, in the state of incorporation. Unlike a traditional corp., a PC must comply with the rules and regulations of the state's licensing body.

In California, for example, licensed physicians who want to form a professional medical corporation must register with the Medical Board of California. The articles of incorporation must state that the specific purpose of the business is to provide professional services, such as medical services. With the exceptions of the company's secretary and ancillary personnel, every shareholder, officer, and director must be licensed to practice medicine. Should an individual shareholder be disqualified from providing professional services or pass away, the business acquires that person's shares of stock.

PC naming requirements vary by state and must conform to the state's licensing authority. As a general rule, the name must contain a word or words that describe the professional services that the business provides or the last name of one or more shareholders. The name cannot be similar to that of another PC registered in the same state.

In most states, the name of the company must end with the words “chartered," “limited," “professional association," “service corporation,"" “corporation," “incorporated," or “a professional corporation," or an abbreviation of one of these terms. In contrast, some states disallow the name to end in “incorporated" or “Inc." or to contain the words “bank," “banker," “trust," “company," “corporation," “incorporated," or any abbreviation of these terms.

If you're unsure about how to form a medical PC in your state, visit your respective Secretary of State website to obtain additional information on what steps you must take when forming your business.

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