California Practice Structure Guide: The Professional Medical Corporation, SB 351 and the 2026 Enforcement Signals

Entity and Ownership

California physicians practice through a professional medical corporation under the Moscone-Knox Professional Corporation Act. Business and Professions Code section 2400 says corporations have no professional rights, privileges or powers, and section 2402 exempts medical corporations that follow the Act. The Medical Board's practice information page lists physicians operating through an LLC or LLP as prohibited, so the corporation is the form. Every shareholder, director and officer must be a licensed person, apart from assistant secretaries and assistant treasurers. The corporations code lets 15 listed licensee types, including registered nurses, physician assistants, pharmacists and others, hold shares, serve as officers or directors or be employed, with their combined shares capped at 49%. Nurse practitioners are not listed separately, and we read them as registered nurses for this purpose, which should be confirmed with counsel. Non-licensees cannot own, and unlicensed staff may be employed but cannot render professional services.

The articles must state that the corporation is a professional corporation. A fictitious name permit from the Medical Board is needed if the practice name is not the owner's own name, and the Board's page lists a $70 fee with renewal every two years and a listing of shareholders. We found no separate certificate of registration for a medical corporation and no Knox-Keene issue for a cash-pay practice.

The Corporate Practice Position

California's rule combines the unlicensed practice statutes, the section 2400 bar and Medical Board guidance. The Board's page reserves to physicians clinical decisions such as diagnostic tests, referrals, overall patient care, patient volume and hours, and business decisions such as medical records ownership, clinical-competency hiring and firing, payer contracting parameters, coding and billing and equipment and supply approval. A physician may consult unlicensed persons but must keep ultimate responsibility or approval. The Board says an MSO is acceptable only for administrative staff and services and becomes a problem if it arranges, advertises or provides medical services or controls the practice, and it lists a physician medical director who does not own the practice as a prohibited structure. Aiding an unlicensed person is unprofessional conduct.

SB 351 and AB 1415

SB 351, signed in October 2025 and effective January 1, 2026, targets private equity groups and hedge funds involved in any manner with a California physician or dental practice and entities they control. It prohibits interfering with clinical judgment and controlling medical records, clinical-competency staffing, payer contracting parameters, coding and billing and equipment approval, and it voids violating contract terms and bars certain post-termination non-competes and non-disparagement clauses in practice-management and asset-sale contracts with those investors, while preserving sale-of-business non-competes. The Attorney General can seek injunctive and equitable relief and fees, and we found no civil penalty provision. Passive investors, hospital systems, public agencies and lenders are not covered. Law-firm commentary says it does not change the existing prohibition, and a section number cited by one firm differs from another, so we refer to the bill and not a code section.

AB 1415, effective the same day, adds MSOs, private equity groups, hedge funds and owners or operators of providers as noticing entities for transactions reviewed by the Office of Health Care Affordability. Reported thresholds are $25 million in annual revenue or California assets, $10 million for transactions with noticing entities, and 10% acquisitions for private equity and hedge fund triggers. A secondary source says an MSO triggers a filing only if it serves a health care entity meeting $25 million or serves two or more providers with $10 million or more in combined California revenue. The agency's implementing regulations were reported as proposed final in September 2026, and we found no source confirming adoption. A single small cash-pay practice and its MSO is probably below the thresholds, but is not exempt by statute.

2026 Enforcement Signals

In June 2026 the Attorney General announced a settlement with Carbon Health, subject to court approval, with a $4.4 million penalty. Injunctive terms reported by law firms bar management agreements that give the MSO full control of advertising, payer negotiation, equipment selection or clinician hiring, firing and pay, bar MSO ownership in the practices including an assignable option, and bar coercive exclusive financing, while carving out ordinary secured lending. The Attorney General did not declare friendly-practice models unlawful in themselves. In March 2026 the Attorney General filed an amicus brief in Art Center Holdings v. WCE CA Art, a pending appeal, arguing that an MSO's right to replace the physician-owner means it effectively owns the practice even if never exercised. A May 2026 dental settlement with Aspen reportedly addressed revenue-based fees, owner replacement and clinician non-competes, and its penalty figures were reported inconsistently. The terms to avoid are an MSO right to replace the physician-owner, assignable stock options, buy-sell terms requiring MSO consent, exclusive MSO financing, MSO control of advertising, payer contracts and equipment, and break fees.

The Management Agreement and Fees

Business and Professions Code section 650(b) says a percentage-of-gross-revenue payment for services that are not referrals is not unlawful if commensurate with the value of the services furnished, and a 2015 appellate decision, Epic Medical Management v. Paquette, declined to treat a comprehensive percentage-fee agreement as illegal as a matter of law while noting a strict delineation between medical and non-medical elements. Against that, the 2026 Aspen proposal addressed revenue-based fees, so our practice is a fixed or fair-market fee. California voids employment non-competes, including those signed elsewhere, with civil liability and fee shifting for employees.

Med Spa and Aesthetic Rules

California has no med spa license that we found. The Board treats lay-owned spa medical director arrangements as aiding unlicensed practice, and guidance we could only read through summaries says paper-only supervision violates the law and cosmetologists may not inject or use lasers. Prescribing requires an appropriate prior exam and medical indication, and a telehealth exam is allowed if it meets the standard of care. We did not verify laser regulations, IV therapy rules or compounding rules for this guide. A federal advisory committee in July 2026 recommended adding several peptides to the 503A bulks list, but FDA has not acted and nothing has legally changed.

How We Structure It

As a rule we set up a professional medical 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 California the agreement contains none of the terms the Attorney General has named, and the physician-owner cannot be replaced by the MSO.

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.