Key Takeaways

• Cal. Corp. Code § 13407 makes any share transfer of a California professional corporation to a disqualified (non-licensee) person void by operation of statute. A non-licensee cannot buy the shares of the target’s PC. This is the threshold constraint on transaction structure.
• Where the target operates through an LLC or a non-physician corporation, the stock/membership-interest purchase is technically available, but taking the entity means inheriting the seller’s historical CPOM, marketing, billing, and payor exposure — the same exposure the buyer’s diligence should be trying to leave with the seller.
• Asset purchases with proper allocation between clinical and non-clinical assets are the default structure for non-licensee acquisitions of California treatment businesses. The clinical assets go to a newly formed physician-owned PC; the non-clinical assets go to the buyer’s MSO.
• Asset structures also facilitate the payor-transition analysis: Medicare change of ownership under 42 C.F.R. § 489.18 provides distinct paths depending on whether the buyer assumes the seller’s provider agreement or applies for new enrollment.
• AB 1415 (effective January 1, 2026; OHCA proposed regulations May 15, 2026 with an August 2026 projected effective date) may impose independent 90-day OHCA notice obligations on the transaction depending on the buyer’s capital stack and acquisition vehicle.

In most non-healthcare M&A, the buyer chooses between an asset purchase and a stock (or membership-interest) purchase based on tax treatment, successor-liability exposure, contract-assignment risk, and how much of the target’s existing entity the buyer wants to inherit. In California healthcare, the choice is narrower. The Corporate Practice of Medicine doctrine and Cal. Corp. Code § 13407 mean that a non-licensee buyer often cannot buy the shares or membership interests of the target’s operating entity even if they want to. And when the option is technically available — for example, where the target has been operating through a non-medical LLC, the exposure the buyer inherits by taking the entity often makes the asset structure the substantively better answer anyway.

This post walks through the analysis. It sits under the buyer pillar for the CPOM Acquisition & Remediation cluster and is a companion to the friendly-PC structuring spoke and the diligence checklists.

The Threshold Constraint: § 13407 and Non-Licensee Share Transfers

The starting point is Cal. Corp. Code § 13407, and the operative language is not subtle: “Any transfer in violation of this restriction shall be void.” The restriction is that only licensed persons in the profession the corporation is organized to practice may hold shares of a California professional corporation. Non-licensees are disqualified.

Two practical implications flow from § 13407 for a non-licensee buyer.

First, the buyer cannot purchase the target’s PC shares. Not now, not with a promissory note, not with an option that vests later, not through a nominee holding structure. Every version of “non-licensee holds the shares” is void — either at closing or, for structures that try to defer the transfer, when the deferred transfer would trigger. A buyer who tries to work around § 13407 with a nominee shareholder arrangement, an assignable option, or a springing-title mechanism is building the structure the California Attorney General identified as impermissible in the June 2026 Carbon Health settlement.

Second, the target’s PC shares have to go somewhere. In a bifurcated asset purchase, the target’s shareholder-physician either dissolves the PC after clinical assets have transferred out, sells the PC to another licensed physician, or retains the PC as an inactive shell. In some transactions, the target’s PC continues in operation, and the buyer’s physician-partner forms a separate PC — in that case, the target’s PC operates alongside the buyer’s PC until wind-down, or the two PCs merge under a licensed shareholder. The mechanics vary; what does not vary is that no non-licensee can end up holding the shares.

The result is that “stock purchase” of a properly structured California treatment business is not really available to a non-licensee. Where the target is already structured with a physician-owned PC handling clinical operations and an MSO or LLC handling non-clinical operations, the buyer could purchase the MSO shares or membership interests — but the clinical entity remains behind with the licensed shareholder, and the buyer has to acquire the clinical assets separately through the buyer’s physician-partner’s new PC.

The Common Fact Pattern: Target Operates Through an LLC

More common in non-licensee acquisition deals is a target that never had a physician-owned PC in the first place. The seller has been operating through a plain LLC — sometimes with a paper medical director, sometimes without, and has been billing patients directly through the LLC for services requiring a licensed provider. In these fact patterns, the technical option to purchase the LLC’s membership interests exists (§ 13407 does not apply because the LLC is not a professional corporation), but taking the LLC creates two problems the asset structure avoids.

Problem 1: Historical exposure travels with the entity. A stock or membership-interest purchase of the seller’s LLC means the buyer acquires the entity with all of its liabilities, contingent and known. That includes any exposure under B&P § 17200 (Unfair Competition Law) for having operated as an unlicensed medical provider; any false-advertising exposure under B&P § 17500 for marketing that overstated the clinical structure or outcomes; any consumer-protection exposure for services rendered by a business not authorized to render them; any payor-recoupment exposure for prior billing; and any tail malpractice exposure from clinical services delivered under the non-compliant structure. Asset purchases with proper allocation can leave most of this behind with the seller — subject to successor-liability doctrines that limit but do not eliminate the buyer’s exposure.

Problem 2: The LLC still cannot render medical services going forward. Purchasing the seller’s LLC does not fix the CPOM problem the LLC creates. The buyer either has to wind down the clinical side of the LLC’s operations and rebuild through a friendly-PC + MSO structure (which is what an asset purchase would have accomplished directly), or the buyer keeps operating the LLC as a medical provider and inherits the same CPOM exposure that made the seller’s operation non-compliant. Neither is a good outcome.

For these reasons, the asset purchase with bifurcated clinical/non-clinical allocation is the default answer even when the technical option to purchase the LLC exists.

Successor-Liability Doctrines in Asset Transactions

Asset purchases limit but do not eliminate the buyer’s exposure to the seller’s historical liabilities. California recognizes four doctrines under which a successor by asset purchase may be held responsible for the predecessor’s obligations:

• Express or implied assumption of the liability by the buyer in the asset purchase agreement.
• De facto merger — where the substance of the transaction is a merger even though its form is an asset purchase (continuity of ownership, dissolution of the seller, assumption of ordinary-course liabilities, continuity of business).
• “Mere continuation” of the seller’s business by the buyer under a different name (same management, same location, same employees, same customers, same equipment).
• Fraudulent conveyance — a transaction structured to leave the seller without assets sufficient to satisfy its creditors.

For a non-licensee buyer of a California treatment business, the mere-continuation doctrine is often the doctrine to plan around. A buyer who acquires the seller’s clinical assets into a new PC, keeps the same brand, operates at the same location, retains the same staff, and continues serving the same patients has fact patterns that could be argued to fit “mere continuation.” Well-structured asset purchase agreements address this through explicit non-assumption language, indemnification and holdback for pre-closing liabilities, and — for meaningful historical exposure, escrow or seller retention of specified obligations.

The successor-liability analysis is fact-intensive and California-specific; it is a substantive question for counsel, not a fill-in-the-blank in the asset purchase agreement.

The Bifurcated Asset Structure for Non-Licensee Acquisitions

A non-licensee acquisition of a California treatment business through an asset purchase typically bifurcates the target’s assets into two streams:

Clinical assets to a newly formed physician-owned PC. These include patient records, clinical goodwill, clinical equipment (chambers, laser systems, IV infusion equipment, chairs, exam tables), provider employment agreements or offers to hire, standardized procedures manuals, DEA registrations where applicable, and prescriber-of-record continuity for patients mid-treatment.

Non-clinical assets to the buyer’s MSO. These include the trade name and any Fictitious Name Permit rights, the real estate leasehold or property, non-clinical equipment (furniture, non-clinical technology, marketing materials), systems and IT infrastructure, marketing IP and customer databases (subject to HIPAA considerations for patient contact information), and non-clinical staff employment agreements.

The purchase-price allocation follows the bifurcation. The buyer’s CPA coordinates on tax treatment (goodwill amortization, Section 197 intangibles, allocation among asset categories, potential Section 338(h)(10) considerations where a target C-corp is involved). The seller’s counsel and CPA participate on the sell-side allocation.

The transaction runs on two simultaneous asset purchase agreements — one between the buyer’s MSO and the seller’s non-clinical operation, and one between the physician-partner’s newly formed PC and the seller’s clinical operation (or physician). These agreements are typically negotiated as a package with cross-conditions on closing.

Payor Transition: 42 C.F.R. § 489.18 and the CHOW Analysis

For targets with meaningful Medicare enrollment (uncommon for wellness-oriented treatment businesses; more common for medical HBOT, wound care, and certain higher-intensity practices), the buyer analyzes the change-of-ownership mechanics under 42 C.F.R. § 489.18.

Assumed provider agreement. The buyer takes the seller’s Medicare provider agreement and continues billing under the seller’s provider number through the transition. The buyer inherits the seller’s cost-report obligations, potential prior-period overpayment exposure, and any pending audit or investigation. The advantage is no billing gap; the disadvantage is inherited exposure.

New enrollment. The buyer’s new PC applies for its own Medicare enrollment (CMS-855 forms) and begins billing under its own provider number after enrollment. This isolates the buyer from the seller’s historical Medicare exposure but creates a billing gap between closing and enrollment approval that can extend for months.

Medi-Cal has no uniform CHOW framework — the analysis depends on the specific Medi-Cal enrollment and any managed-care contracts the target holds. Commercial payors typically require consent or novation on assignment of the provider participation agreement.

For predominantly cash-pay practices, the payor-transition analysis is limited and the timing constraint is less binding.

AB 1415 and the OHCA Notice Overlay

The 2026 development on transaction structure that most non-licensee buyers underestimate is AB 1415 and the OHCA notice framework. AB 1415 (Ch. 641, Stats. 2025; effective January 1, 2026) added “noticing entities” to the Office of Health Care Affordability’s material-change-transaction notice regime under the Health Care Quality and Affordability Act.

OHCA’s proposed emergency regulations, published May 15, 2026, set (among other provisions) a 5% ownership threshold for private equity and hedge fund transactions and address MSO transactions, newly-created acquisition vehicles, and — a proposal outside the statute’s express text, stand-alone real estate sale-leaseback transactions involving provider facilities. The informal comment period closed June 11, 2026; the OHCA Board discussed the proposals June 24, 2026; the final proposed text is expected to submit to the Office of Administrative Law in July 2026 with a projected August 2026 effective date. Confirm current status at hcai.ca.gov before finalizing deal timing.

Practical rules for a non-licensee buyer:

• Single-clinic acquisitions by an individual buyer or a family office without private equity or hedge fund participation typically will not trigger AB 1415 notice under the proposed thresholds. The 5% ownership threshold does not apply to acquirers outside the PE/hedge fund category.
• Multi-location roll-ups, particularly those structured through newly-created acquisition vehicles that will hold or manage multiple provider practices, are more likely to trigger notice depending on structure.
• Transactions involving PE or hedge fund capital in the stack should assume AB 1415 notice will apply and build the 90-day window into the deal timeline. Practitioner analysis has framed this as: most MSOs entering into new California relationships should assume notice will be required unless the arrangement is unusually limited in scope.
• Existing arrangements are not grandfathered, but AB 1415 applies prospectively to transactions closing on or after January 1, 2026 — a pre-existing structure that continues without a material change transaction does not itself trigger notice.

Buyers whose acquisition vehicle, capital stack, or roll-up structure may trigger AB 1415 notice should factor the 90-day window into the LOI timeline from the beginning. Discovering an AB 1415 notice obligation after LOI signing typically extends closing by three to four months.

When Stock or Membership-Interest Purchases Do Come Up

Two scenarios where a non-licensee buyer might reasonably consider a stock or membership-interest purchase rather than an asset purchase:

Purchase of an existing MSO. Where the target consists of a physician-owned PC and a separately-owned MSO with a compliant MSA between them, and the buyer wants to acquire the MSO going forward (with the PC continuing under the existing physician-owner or transitioning to the buyer’s physician-partner), a membership-interest purchase of the MSO is a legitimate structure. The buyer inherits the MSO’s assets, liabilities, and contracts (including the MSA with the PC), and the MSO’s operating history transfers to the buyer.

Purchase of a targeted sub-business. In some multi-line targets, a stock or membership-interest purchase of a specific subsidiary is cleaner than a partial asset sale. This is uncommon in the med spa / IV / hyperbaric / wellness segments but occurs in larger healthcare platforms.

In both scenarios, the buyer’s diligence still needs to surface historical exposure and structure the deal documents to allocate it appropriately.

When to Bring Counsel Into the Structure Discussion

Before the LOI is signed. The choice of transaction structure — asset vs. stock, bifurcated vs. unitary asset, assumed vs. new payor enrollment, AB 1415 notice timing, drives closing timing and every downstream commercial term. Structuring the deal correctly at the LOI stage is materially easier than restructuring after LOI when diligence surfaces findings.

Bay Legal, PC represents non-licensee buyers of California treatment businesses through structural counsel, diligence, and deal documentation. For guidance on your specific situation, call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Frequently Asked Questions

Can I buy the shares of the target’s professional corporation as a non-licensee?

No. Cal. Corp. Code § 13407 makes any transfer of California professional corporation shares to a non-licensee void by operation of statute. The clinical entity has to remain owned by a licensed physician. In an acquisition, the buyer’s physician-partner forms a new PC, and the clinical assets transfer from the seller’s PC (or seller’s LLC, if there is no PC) to the new PC. The buyer’s MSO acquires the non-clinical assets.

The target operates through an LLC. Can I buy the LLC?

Technically yes; substantively usually not a good idea. Buying the LLC means acquiring the entity with all of its historical exposure — the CPOM issue from operating as an unlicensed medical provider, the marketing exposure, the billing exposure, and any payor or consumer-protection exposure. The asset structure with proper allocation limits this. And the LLC still cannot render medical services in California going forward, it either winds down the clinical side (which is what an asset purchase would have accomplished directly) or continues operating non-compliantly.

What is successor liability and does it matter for asset purchases?

Yes. California recognizes four successor-liability doctrines under which a successor by asset purchase may be held responsible for the predecessor’s obligations: express or implied assumption, de facto merger, mere continuation, and fraudulent conveyance. The mere-continuation doctrine is often the one to plan around for treatment-business acquisitions where the buyer continues with the same brand, location, staff, and patient base. Well-structured asset purchase agreements address this through non-assumption language, indemnification, and escrow.

Does the AB 1415 90-day OHCA notice apply to my acquisition?

It depends on the deal structure, the acquisition vehicle, and the capital source. Single-clinic acquisitions by individual buyers without private equity or hedge fund capital typically do not trigger notice under OHCA’s proposed 5% threshold for PE/hedge fund transactions. Multi-location roll-ups, transactions involving PE or hedge fund capital, and transactions through newly-created acquisition vehicles are more likely to trigger notice. OHCA’s final regulations were expected to take effect in August 2026 as of drafting; confirm current status at hcai.ca.gov before finalizing deal timing.

How is the payor transition different for asset vs. stock purchases?

For Medicare, asset purchases allow the buyer to either assume the seller’s provider agreement (inherit exposure, avoid billing gap) or apply for new enrollment (isolate from exposure, accept billing gap). Stock or membership-interest purchases typically continue the seller’s provider enrollment automatically, which limits the buyer’s control over the payor-inheritance decision. For predominantly cash-pay treatment businesses, the payor-transition analysis is limited in either structure.

Talk to a California Healthcare Acquisition Attorney

Bay Legal, PC represents non-licensee buyers of California treatment businesses through structural counsel, CPOM diligence, and deal documentation. If you are evaluating a target and want to structure the transaction correctly from the beginning, call (650) 668-8000 or schedule a consultation at baylegal.com/contact.