How to Structure Your Medical Practice for Liability Protection
Are you preparing to form a medical practice in California? It is imperative that you put a structure in place that provides adequate liability protection. Liability is one of the key issues that doctors need to worry about when setting up their own professional practice in California. Here, our Fremont business lawyer for starting a medical practice provides an overview of the key things to know about structure and liability protection in California.
Why Liability Protection Matters
Liability protection matters because one lawsuit or contract dispute can threaten everything a doctor has built. When you set up a medical practice with the proper legal structure, California law makes physicians personally responsible for their own malpractice, but not for ordinary business debts if the practice is properly structured. When you add sufficient medical malpractice insurance, your professional practice will be in the best possible position to reduce liability risk.
You Need to Choose the Right Legal Entity for Your Medical Practice
In California, physicians cannot form a traditional limited liability company (LLC) for the purpose of providing medical services. Instead, the proper legal structure is a professional corporation (PC) under the Moscone-Knox Professional Corporation Act (Cal. Corp. Code § 13400 et seq.). The law governs how licensed professionals (such as physicians, surgeons, and dentists) may incorporate. A properly formed medical corporation separates business obligations from personal assets. Although a PC does not shield a doctor from personal malpractice liability, it does protect against the debts and contractual obligations of the practice itself. That is a key form of liability protection.
Note: To form a professional corporation (PC) for a medical practice in California, ownership is restricted to at least 51% ownership by licensed physicians and surgeons, and the remaining 49% ownership may be by other specific qualified licensed individuals. Under the Moscone-Knox Professional Corporation Act, only people holding valid medical licenses issued by the Medical Board of California may serve as directors, or act as officers of a medical corporation, except a one shareholder (physician) PC may have a Secretary who is unlicensed. Non-licensed individuals, including outside investors or management firms, cannot own or control any part of the professional corporation. Otherwise, you could be denied PC status.
Medical Practitioners Need Proper Malpractice Insurance
It is important to remember that California law does not let physicians shield themselves from their own negligence through any business structure. A professional corporation limits business and contract risk, but malpractice exposure remains personal. Proper coverage (which is typically at least $1 million per incident and $3 million aggregate) helps to protect a professional practice against catastrophic verdicts and board complaints. The policy should list employed physicians and other licensed staff. That is consistent with Bus. & Prof. Code § 2052, which prohibits unlicensed practice. In California, medical malpractice insurance is not optional, it is necessary.
Contact Our California Business Lawyer for Medical Practices Today
Lynnette Ariathurai is a top-rated California business law attorney. With a commitment to solutions, Attorney Ariathurai can help you structure your medical practice for the maximum liability protection. Contact us today for a fully confidential, no obligation initial consultation. We work with professional practices throughout the Bay Area.