Entity Formation · Licensed Professionals

Your California Practice Probably Can't Be an LLC: A Guide to Professional Corporations

By Christopher Scott-Dixon, Esq. · State Bar of California No. 236027 · CSD Business Law · July 27, 2026

You went to an online filing service. You picked the LLC, because that's what everyone picks. The state accepted the paperwork, the certificate arrived, and you framed it. None of that means the entity is doing what you think it's doing.

If you are a licensed professional in California — a physician, a dentist, a therapist, a psychologist, a veterinarian, a chiropractor, an acupuncturist — the entity that holds your practice is governed by a different body of law than the one that governs your friend's landscaping company. Most of the internet does not know this. Most of the filing services that took your money did not tell you.

Here is how California actually structures a licensed practice, who is allowed to own a piece of it, and what to do if the entity you already have is the wrong one.

The rule almost nobody hears until it matters

California's LLC statute contains a sentence that quietly excludes most of the healing professions. Under Corporations Code § 17701.04(e), a California limited liability company may not render professional services unless a licensing statute expressly authorizes it to do so.

For most professions, no such authorization exists.

So the practical answer for a licensed clinician practicing alone is generally a sole proprietorship or a professional corporation. Where two or more licensees practice together, a general partnership of licensed persons is also lawful — though it offers no liability protection at all, which is usually the reason people wanted an entity in the first place.

What is generally not available is the LLC. And unlike lawyers, accountants, architects, engineers, and land surveyors, the healing-arts professions cannot fall back on a limited liability partnership either.

The Moscone-Knox Professional Corporation Act

The statute that governs licensed practice as a corporation is the Moscone-Knox Professional Corporation Act, at Corporations Code §§ 13400–13410. It permits licensed professionals — physicians, dentists, psychologists, nurses, chiropractors, marriage and family therapists, and others — to practice through a corporation, and it sets terms the General Corporation Law does not.

Three of those terms matter more than the rest.

1 · Who may own shares

This is the heart of it. Under Corporations Code § 13401.5, shares in a professional corporation may generally be held only by licensed persons — and the statute is profession-specific about who else may hold the remainder.

To take one example: for a marriage and family therapy corporation, licensed MFTs must hold at least 51% of the shares. Up to 49% may be held by a defined list of other healing-arts licensees — licensed physicians and surgeons, psychologists, clinical social workers, registered nurses, chiropractors, acupuncturists, naturopathic doctors, professional clinical counselors, and licensed midwives.

Read that list again and notice who is not on it. Your cousin who wants to invest. Your business partner from the last venture. The person who put up the build-out money.

2 · Who may serve as an officer or director

Moscone-Knox generally requires that directors and most officers be licensed persons. It also accommodates the reality of small practices: under Corporations Code § 13403, a professional corporation with a single shareholder needs only one director — that shareholder — who also serves as president and treasurer, and the corporation's other officers in that situation need not be licensed. A two-shareholder corporation needs only two directors, who fill the four officer positions between them.

3 · What it may be called

Under Corporations Code § 13409, a professional corporation may adopt any name permitted by a law expressly applicable to its profession, or by the rule or regulation of the agency regulating that profession. The Secretary of State may require proof that the name complies. In practice this means your licensing board's naming regulations control, and they differ from board to board. This is a place where generic formation services routinely get it wrong.

The corporate practice of medicine — a separate rule, often confused with the first

Ownership restrictions and the corporate practice of medicine doctrine are two different things. They overlap in effect and they are not the same law, and conflating them is how people talk themselves into structures that don't work.

Business and Professions Code § 2400 states the doctrine plainly: "Corporations and other artificial legal entities shall have no professional rights, privileges, or powers." A properly formed professional corporation is exempted. The purpose is to keep clinical judgment with the clinician, and out of the hands of an unlicensed owner, investor, or manager.

What that means in practice is that decisions that are clinical in nature — who to hire on competence grounds, what equipment and supplies to use for patient care, how care is coded and billed, what terms to accept from third-party payors — are supposed to rest with licensed people, not with whoever holds the capital.

There are lawful ways to bring outside capital and professional management into a practice. They are structured carefully, and they are structured in advance. The arrangement that gets a practice into trouble is almost never malicious — it is a good-faith handshake with someone who wanted to help, papered by nobody.

What a professional corporation does not do

It is worth being direct about this, because the marketing around entity formation is not.

A professional corporation does not shield you from liability for your own professional negligence. No entity does. If you make a clinical error, the entity does not stand between you and the consequence. That is what professional liability insurance is for, and entity choice is not a substitute for it.

What the right entity does do is organize the parts of a practice that are genuinely a business: ownership and its transfer, the liabilities of the enterprise as distinct from your clinical work, succession when a shareholder leaves or dies, and the ability to sell what you built. Those are not small things. They are simply different things.

You already formed an LLC. Now what?

First: this is common, it is not a catastrophe, and it is fixable. It is dramatically easier to fix on a quiet Tuesday than in the middle of a claim or a sale.

The usual path looks like this:

1. Confirm what your license actually permits. Rules are profession-specific. Start with the statute that governs your board, not with a blog post — including this one.
2. Form the correct professional corporation, with articles, bylaws, and a share structure that matches the eligible-shareholder rules for your profession.
3. Get the name right against your board's regulations, not against what sounded good.
4. Coordinate the transition with your CPA. Moving a practice from one entity to another has tax consequences worth planning around rather than discovering.
5. Wind down the LLC properly. An abandoned entity keeps accruing obligations, including the annual franchise tax.
6. Fix the ownership at the same time. If a non-licensed person holds an interest, this is the moment to restructure it — not later.
7. Add the documents nobody sold you. A buy-sell provision. What happens if a shareholder dies, becomes disabled, divorces, or loses a license. These are the provisions that decide whether a practice survives an ordinary human event.

The bottom line

A licensed practice in California is not a business like other businesses. The entity rules are different, the ownership rules are different, and the doctrine governing who may direct clinical judgment has no analogue in ordinary commerce. An online form that does not ask whether you hold a license cannot possibly get this right.

If your practice is held in an LLC, or if someone who isn't licensed holds a piece of it, that is worth an hour of attention now. Prevention is the whole of this work. It is always cheaper than the cure, and in a licensed practice, the cure can involve your license.