Arizona Practice Structure Guide: The Professional Corporation, Old Case Law and a Statute That Allows Minority Lay Ownership

Entity and Ownership

Arizona's Professional Corporations chapter requires a certificate of disclosure and articles filed with the Corporation Commission stating that the entity is a professional corporation, and limits a corporation to one profession plus ancillary services. Services may be rendered only through Arizona-licensed individuals, though unlicensed employees may perform non-licensed roles. At least half the directors and the president must be licensed, and the name must include a designator such as professional corporation, P.C., P.A. or S.C. The statute allows licensed individuals, certain professional entities and ESOPs to hold voting shares and allows other persons to hold up to 49% unless the licensing authority prescribes otherwise. We do not use that allowance and keep ownership with the physician. We found no separate registration with the Arizona Medical Board.

The Corporate Practice Position

The doctrine is case law. In Funk Jewelry v. State ex rel. La Prade (1935) the Supreme Court held that a store employing an optometrist violated the licensing law, and in Board of Optometry v. Sears (1967) it said a corporation cannot practice by employing a licensee or through arrangements that subject the licensee to corporate control, while upholding the Sears arrangement because the company exercised no control. In Midtown Medical Group v. State Farm (2008) an appeals court held a lay-owned corporation licensed as an outpatient treatment center could employ physicians, declined to modify Funk and Sears, and found nothing in the physician statute barring such employment. Commentators read Midtown as a narrow facility-licensure exception. We found no Arizona Medical Board or Attorney General policy statement on the doctrine and no enforcement framed as corporate practice.

The Management Agreement and Fees

The physician practice act makes it unprofessional conduct to divide a professional fee for patient referrals among providers or institutions, or through an arrangement with the same effect. By its terms that is tied to referrals and does not ban a fixed or fair-market management fee to a non-provider. We found no Board rule, opinion or case on a percentage-of-revenue management fee. The act does not expressly bar a non-licensee from controlling clinical judgment, which is why the agreement leaves clinical decisions with the physician.

In Valley Medical Specialists v. Farber (1999) the Arizona Supreme Court refused to enforce a three-year, five-mile physician non-compete and said such covenants are strictly construed against the public interest. We found no statute banning them.

Med Spa and Aesthetic Rules

Arizona has no med spa license. Lasers are regulated by statute, with device registration and technician certification and discipline for supervisors and owners who allow technician errors. A 2026 bill to register med spas under the Board of Pharmacy was introduced and, as far as we found, did not advance. Enforcement has come through the Attorney General: a 2025 case charged a Scottsdale nurse over a med spa whose founding physician held only a Washington license, which the defendant denies, and a 2026 indictment involved an unlicensed Botox business. Both are allegations, and the pattern is that an out-of-state or absent physician does not satisfy supervision.

How We Structure It

As a rule we set up a professional corporation owned by the licensed physician, with no exceptions for what looks like a more flexible state. Patients pay the physician-owned practice. The practice pays the management company a fixed monthly fee under a written management services agreement. The management company pays MedGrid a fixed monthly retainer for consulting. The MSO never practices medicine, and the physician makes every clinical decision. In Arizona the supervising physician must be Arizona-licensed and actually involved, and the MSO fee stays fixed and unconnected to referrals.

Disclaimer

This article is general educational information, not legal advice. Entity and corporate practice rules change, and parts of this summary rest on secondary sources, so have health care counsel in the state confirm the structure before you form or sign anything.