Succession Planning for California Medical Practices
The owners of California medical practices should have a comprehensive, well-considered succession plan in place. If something happens to any owner of the medical practice without a plan in place, it can create some very serious challenges. Navigating the transition is a lot easier with a proper business succession plan. Here, our California business law attorney for business owners provides a guide to succession planning for Bay Area medical practices.
Background: What is Business Succession Planning?
The United States Small Business Administration (SBA) explains that business succession planning is the process of preparing for the transfer of ownership and management of a business when an owner retires, becomes incapacitated, or passes away. Along with other things, a comprehensive business succession plan for a medical practice identifies future leadership, establishes a transition timeline, and addresses key legal, regulatory, and financial issues tied to the change in control.
Physician Ownership Restrictions in CA are Key to Medical Practice Succession Planning
Succession planning for a California medical practice must always begin with the state’s corporate practice of medicine doctrine. California law restricts ownership of professional medical corporations to licensed physicians and certain other licensed healthcare professionals. These rules appear in the Moscone-Knox Professional Corporation Act. A transition plan must ensure that ownership always remains compliant with these requirements. If a physician owner dies, becomes disabled, or retires, the practice must transfer the ownership interest to a qualified licensed professional. That needs to be addressed within your business succession plan.
Buy-Sell Agreements for Medical Practice Ownership
A comprehensive succession plan for a medical practice will often include a buy-sell agreement governing ownership transfers. It is this type of agreement that establishes the legal mechanism for transferring shares when a triggering event occurs. The most common “triggers” are death, disability, retirement, voluntary departure, or the loss of a professional license of an owner.
A buy-sell agreement must be properly drafted. It should clearly define the valuation methodology used to determine the purchase price of the departing physician’s ownership interest. It should also identify the funding mechanism used to complete the purchase. Many medical practices rely on disability insurance or life insurance policies to fund ownership buyouts.
Full Compliance With California’s Corporate Structure Rules is a Must
Most physician groups in California operate as professional medical corporations (PCs). Succession planning must address the governance and ownership rules that apply to these entities. Only individuals licensed to practice medicine may hold shares in a medical corporation, though limited exceptions exist for certain allied professionals. When a physician shareholder leaves the practice, the corporation must ensure that the shares transfer to a properly licensed successor. A California business lawyer for medical practices can help.
Contact Our Bay Area Business Lawyer for Medical Practices Today
Lynnette Ariathurai is a California business law attorney who has extensive experience working with medical practices. If you have any questions or concerns about succession planning strategies for a medical practice in California, please do not hesitate to contact us today for a fully confidential consultation. With an office in Fremont, we work with medical practices throughout the entire San Francisco Bay area.
business planning, business succession plan, healthcare agency succession plan