Key Takeaways

• When a California physician or chiropractor who owns a professional corporation dies, the shares cannot stay in the estate. Corp. Code § 13407 requires that the shares be transferred to the corporation, another shareholder, or another licensed person within six months of the date of death — or the corporation’s certificate of registration can be suspended or revoked.
• The transferee has to be a qualified licensed person — a California-licensed physician for a medical corporation, a California-licensed chiropractor for a chiropractic corporation, and so on. A non-licensed heir (spouse, child, partner) cannot take the shares.
• Probate (or trust administration if the shares are held in a revocable trust) controls the transfer mechanics. The Probate Code’s procedures for handling business interests apply, with the additional Moscone-Knox share-transfer overlay.
• The practical workhorse is a buy-sell agreement in the corporation’s bylaws or a separate shareholder agreement. The buy-sell typically requires the corporation (or the remaining shareholders) to repurchase the deceased’s shares at a defined valuation, funded by life insurance, sinking funds, or installment payments.
• For solo-physician practices, the death of the sole shareholder triggers a 30-day window (per 16 CCR § 1345 for Medical Board entities) during which a temporary administrator can continue limited operations — but the practice itself either has to be transferred to a qualified licensed person or wound down.

Why This Matters Before Anyone Dies

The right time to plan for the death of a physician or chiropractor practice owner is years before anyone is sick. Two structural problems crystallize at the moment of death:

1. The shares can’t sit in the estate. Section 13407 imposes a hard six-month deadline. Without prior planning, the estate may face forced liquidation at unfavorable terms.
2. The licensee’s clinical authority dies with them. The deceased physician’s license cannot transfer. The practice’s ongoing clinical operations have to be picked up by another licensed person — either a remaining shareholder or a successor — and that successor has to be in place quickly.

For solo practices, the situation is more acute. The corporation can survive the deceased physician — at least for a brief period — but the operating practice cannot deliver services without a licensed physician.

The planning tools that prevent this from becoming a crisis are well-established: buy-sell agreements, succession plans, key-person life insurance, identified successor physicians, and (where appropriate) trust structures that keep the shares out of probate.

Quick CTA: If you own a California medical, chiropractic, or other healthcare professional corporation — solo or with partners — the succession-planning conversation should happen before it becomes urgent. Bay Legal, PC counsels physicians, chiropractors, and other licensed professionals on California professional corporation succession planning, buy-sell agreements, key-person insurance structuring, and trust-based transfer planning. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

The Statutory Framework

Corp. Code § 13407 — The Six-Month Rule

Section 13407 is the operative statute. The text:

“Shares in a professional corporation or a foreign professional corporation qualified to render professional services in this state may be transferred only to a licensed person, to a shareholder of the same corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to a professional corporation, and any transfer in violation of this restriction shall be void, except as provided herein. A professional corporation may purchase its own shares without regard to any restrictions provided by law upon the repurchase of shares, if at least one share remains issued and outstanding.”

The enforcement piece:

“If a professional corporation… shall fail to acquire all of the shares of a shareholder who is disqualified from rendering professional services in this state or of a deceased shareholder… or if such a disqualified shareholder or the representative of such a deceased shareholder shall fail to transfer said shares to the corporation, to another shareholder of the corporation, to a person licensed to practice the same profession in the jurisdiction or jurisdictions in which the person practices, or to a licensed person, within 90 days following the date of disqualification, or within six months following the date of death of the shareholder, as the case may be, then the certificate of registration of the corporation may be suspended or revoked by the governmental agency regulating the profession in which the corporation is engaged.”

The two key deadlines:

• Disqualification (license revocation or suspension): 90 days to transfer.
• Death: 6 months to transfer.

16 CCR § 1345 — The Medical Board Implementation

The Medical Board’s parallel regulation, 16 CCR § 1345, restates the § 13407 rule for medical corporations specifically:

“Where there are two or more shareholders in a professional corporation and one of the shareholders: (1) dies; or (2) becomes a disqualified person… his or her shares shall be sold and transferred to the corporation, its shareholders or other eligible licensed persons on such terms as are agreed upon. Such sale or transfer shall not be later than six (6) months after any such death and not later than ninety (90) days after the date the shareholder becomes a disqualified person. The requirements of this subsection of this section shall be set forth in the professional corporation’s articles of incorporation or bylaws.”

The regulation also requires that these transfer restrictions be set forth in the articles of incorporation or bylaws of the corporation. Most professional corporations include the language; the ones that don’t are out of compliance with their own organizing documents.

Dental Corporation Carve-Out

Dental corporations may have a different timeline under the dental-specific provisions of the Business and Professions Code, including B&P Code § 1625.3 and related sections, which can extend the share-transfer window past the § 13407 default of six months for death. The specific dental window and its cross-reference to § 13407 should be confirmed against the current dental-corporation statutes before relying on the extended timeline.

Profession-Specific Rules

Several California licensing statutes contain parallel share-transfer rules for their respective professional corporations:

• B&P § 2781 — Medical corporations (mirrors the § 13407 rule)
• B&P § 1054 range — Chiropractic corporations (BCE has its own implementing rules)
• B&P § 2778 — Nursing corporations
• Each profession’s licensing chapter typically contains a corresponding provision

The defaults converge on the § 13407 / 16 CCR § 1345 framework — six months from death, 90 days from disqualification, transferee must be a qualified licensed person.

What Can the Shares Be Transferred To?

Under § 13407, the only permissible transferees are:

1. The corporation itself — the corporation purchasing back its own shares, typically funded by life insurance or sinking funds.
2. Another shareholder of the corporation — a remaining shareholder buying out the deceased’s shares.
3. A licensed person — any California-licensed person qualified to practice in the corporation’s profession. For a medical corporation, a California-licensed physician. For a chiropractic corporation, a California-licensed chiropractor.
4. A professional corporation — another professional corporation in the same profession.

What’s not allowed:

• The deceased’s spouse, children, or other non-licensed family members.
• A trust beneficially held by non-licensed beneficiaries — the trust can hold the shares only briefly, as a transit point, and only if the trust has a qualified trustee or beneficiary plan that satisfies § 13407 within the six-month window.
• A non-licensed business partner of the deceased.
• The estate itself, beyond a short transit period to facilitate transfer.

If no qualified transferee can be found within six months, the corporation’s certificate of registration faces suspension or revocation by the licensing board. The licensing board has discretion — the statute says “may” be suspended or revoked, not “shall” — but the practical reality is that boards do enforce.

Probate Mechanics

Probate of a deceased physician’s or chiropractor’s estate follows the standard California Probate Code, with the additional § 13407 overlay for the professional-corporation shares.

If the Shares Are in a Trust

Most well-planned professional-corporation succession arrangements place the shares in a revocable living trust. On the shareholder’s death:

• The trust becomes irrevocable.
• The trustee succeeds to control of the shares.
• The trustee — who may or may not be a licensed person — has authority to administer the shares under the trust instrument and the Probate Code.
• The trust still has to transfer the shares within the § 13407 six-month window.

A trust doesn’t extend the § 13407 deadline. The advantage of trust-based holding is that the transfer mechanics can happen without probate court supervision, which is typically faster than probate administration.

If the Shares Are in an Estate (No Trust)

The shares pass under probate. The personal representative (executor or administrator) takes possession of the shares as an estate asset.

• The representative has authority under the Probate Code to manage estate assets — including professional corporation shares — but the representative cannot practice medicine or render professional services through the corporation. The personal representative is typically not licensed.
• The representative can negotiate the sale of the shares to a qualified buyer (corporation buyback, remaining shareholder, or third-party licensed person).
• The representative needs to act quickly. Six months is not a long time in probate administration — letters of administration alone can take weeks to issue.

Notification to the Licensing Board

Most California licensing boards expect notification of significant changes to a professional corporation’s shareholder roster. For medical corporations, the Medical Board doesn’t issue a separate certificate of registration but expects FNP and fictitious name records to be updated. For chiropractic corporations, the BCE requires a Special Report (16 CCR § 367.10(b)) within 30 days of any change in officers, directors, shareholders, or articles of incorporation. The BCE publishes its current Special Report fee and procedural details at chiro.ca.gov; confirm before filing.

The six-month window in § 13407 closes faster than estates typically administer. Bay Legal, PC counsels personal representatives, surviving spouses, and remaining shareholders through California professional-corporation succession transactions on tight timelines. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Buy-Sell Agreements: The Workhorse

The instrument that prevents most § 13407 problems is a buy-sell agreement built into the corporation’s bylaws or a separate shareholder agreement. A typical buy-sell does five things:

1. Identifies the triggering events — death, disqualification, retirement, withdrawal, divorce.
2. Specifies the buyer — the corporation, the remaining shareholders, or a defined waterfall.
3. Defines the valuation method — formula, third-party appraisal, agreed annual valuation, book value, or hybrid.
4. Specifies funding — typically key-person life insurance for death; sinking fund or installment payments for disqualification or retirement.
5. Provides for transfer mechanics — share certificate endorsement, board resolution, certificate cancellation, payment terms.

Buy-Sell Structures

Cross-purchase: The remaining shareholders purchase the deceased’s shares. Each shareholder typically holds life insurance on the others. Works well for two- or three-shareholder practices; cumbersome at larger scale.

Entity-purchase (stock redemption): The corporation purchases the deceased’s shares. The corporation typically holds life insurance on each shareholder. Simpler at scale, but the corporation needs sufficient cash or borrowing capacity at the moment of death, which life insurance typically provides.

Hybrid: Cross-purchase with the corporation as fallback buyer, or vice versa. Most flexible; most complex.

Funding the Buy-Sell

For death, key-person life insurance is the standard funding tool. The corporation (or the remaining shareholders) buys life insurance on each shareholder; on death, the insurance proceeds fund the buyout. The premiums are not deductible to the corporation, but the death benefit is generally received income-tax-free.

For disqualification or retirement, where there’s no death benefit to fund the buyout, the typical structure is an installment-payment plan with interest, secured by the shares or other practice assets. Longer payment terms make the buyout more manageable for the buyer; shorter terms protect the seller’s economic interest.

Valuation

The valuation method in the buy-sell drives the outcome. Common approaches:

• Formula — a defined multiple of gross revenue, EBITDA, or other financial metric.
• Agreed annual valuation — the shareholders agree on a value each year, signed and dated.
• Third-party appraisal — an independent valuation expert sets the price.
• Book value or adjusted book value — usually understates the value of an operating practice and is rarely the right answer.

For medical and chiropractic practices, the practical reality is that goodwill is the largest component of value, and goodwill is hard to formula-price. Most well-drafted buy-sells use third-party appraisal triggered by the event, with a backup formula or agreed-value mechanism if appraisal is impractical.

Solo Practitioners: A Harder Problem

The buy-sell framework works well for two-or-more-shareholder practices. For solo practitioners, the structural problem is bigger: the corporation has no other shareholder to step in.

For a deceased solo practitioner with a medical corporation:

• The corporation can survive the death — § 13403 allows a single-member corporation to continue with the proper succession in place.
• The clinical operations cannot continue without a licensed physician. Even a brief gap creates patient-abandonment exposure for the deceased physician’s estate and CPOM exposure for any non-physician trying to keep the practice running.
• The shares have to be transferred to a qualified licensed person within six months.

The practical succession options for solo practitioners:

1. Identified successor physician — a colleague who has agreed (in writing, with a buy-sell agreement and funded life insurance) to take over the practice on the original physician’s death.
2. Practice sale — the executor or trustee sells the corporation (or its assets) to a buyer within the six-month window. Patient records have to be handled per the patient-records-retention rules and HIPAA.
3. Practice wind-down — the practice ceases operations, patient records are transferred to a successor provider or stored per California’s patient record retention rules, and the corporation is dissolved.

For solo chiropractic practices, the analysis runs the same way — except the no-DBA rule under B&P § 1054 means that any sale or transfer has to also handle the corporate name. A successor chiropractor buying the practice typically renames the chiropractic corporation to comply with B&P § 1054.

Patient Records: The Often-Overlooked Issue

Whoever ends up with the practice ends up with the patient records, and the records have their own rules:

• California retention rules: California sets minimum patient-record retention periods that vary by record type, practitioner license, and patient age. A typical baseline for adult medical records is several years from the date of last service, and for records made during patient minority, retention generally runs into adulthood. Specific retention rules are published by the Medical Board, the Dental Board, the Chiropractic Board, and CDPH; consult the applicable board’s current published rules before finalizing a record-retention plan.
• HIPAA requirements: Patient records remain subject to HIPAA’s protections through any transfer.
• Successor provider relationships: If a successor physician takes over the practice, the records can transfer to the successor. If the practice winds down, patients have to be notified of where to obtain records.
• Storage: Records have to be stored securely whether the practice is operating, transitioning, or dissolved.

A clean succession plan includes record-transfer mechanics: the successor takes the records; if no successor, a record-storage agreement with a HIPAA-compliant storage provider; patient notification with at least the deceased physician’s contact-of-record information for record requests.

Estate Tax and Income Tax Considerations

The transfer of professional corporation shares on death has tax consequences worth flagging:

• Stepped-up basis — the shares generally receive a stepped-up cost basis at death under IRC § 1014, which can substantially reduce capital gains tax on a subsequent sale to a non-related buyer.
• Estate tax — federal estate tax may apply if the decedent’s gross estate exceeds the federal exemption. The exemption amount is indexed for inflation and has been the subject of recent legislative attention; confirm the current exemption with a CPA or estate planning attorney before relying on a specific number. California does not have a separate state estate tax.
• Life insurance proceeds — generally income-tax-free to the recipient, but the death benefit may be includible in the decedent’s gross estate depending on ownership structure. Federal and California tax treatment can be technical; coordinate with a CPA on the specific ownership arrangement.
• Practice sale income — capital gains treatment if the shares are sold; ordinary income treatment if the practice’s assets are sold (with depreciation recapture on equipment).

Coordination with an estate planning attorney and a CPA is essential — the structural choices made years before death generally determine the tax outcome at death.

Common Pitfalls and Red Flags

1. No buy-sell agreement in place at all.
2. Buy-sell agreement that hasn’t been updated in 5+ years — valuation outdated, parties changed, funding mismatched.
3. No key-person life insurance, or insurance amounts that don’t cover the current valuation.
4. Shares titled in a non-licensed trust without a clear § 13407-compliant transfer plan.
5. Shares titled directly in the name of a non-licensed spouse as joint tenancy or community property — a transfer that the surviving spouse cannot effect because they are not a licensed person.
6. Solo practitioner with no identified successor
7. Estate of a deceased physician trying to operate the practice during probate administration — CPOM and unlicensed-practice exposure.
8. Failure to update licensing board records within required notice periods.
9. Patient records mishandled during the transition.
10. Six-month deadline missed entirely, leading to potential certificate-of-registration suspension or revocation.

Talk to a California Healthcare Succession Planning Attorney

Every California medical, chiropractic, or other healthcare professional corporation needs a succession plan. The six-month § 13407 deadline is too short to plan in real time; the only way to handle it well is to plan years in advance.

If you own a California medical, chiropractic, or other healthcare professional corporation and you don’t have a current succession plan — or you’re the executor, trustee, or surviving shareholder facing the § 13407 deadline — attorneys at Bay Legal, PC counsel California healthcare practice owners and their estates on succession planning, buy-sell agreements, key-person insurance structuring, trust-based transfer planning, and § 13407-compliant share transfers. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Frequently Asked Questions

What happens to a California medical practice when the physician owner dies?

The professional corporation’s shares must be transferred to a qualified licensed person — another California-licensed physician, the corporation itself buying back the shares, another shareholder, or another professional corporation in the same profession — within six months of the date of death under Cal. Corp. Code § 13407. If no qualified transferee is found in that window, the corporation’s certificate of registration may be suspended or revoked. The clinical operations of the practice cannot continue without a licensed physician in place.

Can a non-licensed spouse inherit a California professional corporation?

Not directly. Cal. Corp. Code § 13407 limits permissible transferees of professional corporation shares to licensed persons in the corporation’s profession, the corporation itself (buyback), other shareholders, or another professional corporation in the same profession. A non-licensed spouse cannot hold the shares as a permanent owner. The shares can pass briefly through the estate or trust as a transit point, but the personal representative or trustee must transfer them to a qualified licensed person (or the corporation) within the six-month window.

What is a buy-sell agreement for a California medical practice?

A buy-sell agreement is a contract — typically built into the corporation’s bylaws or a separate shareholder agreement — that specifies what happens when a triggering event (death, disqualification, retirement) occurs. It identifies the buyer (the corporation, remaining shareholders, or a defined waterfall), the valuation method, the funding (typically key-person life insurance for death), and the transfer mechanics. A well-drafted buy-sell solves most § 13407 problems before they arise.

Does a solo physician’s practice survive their death in California?

The corporation can survive briefly under § 13403’s single-member rule, but the clinical operations cannot continue without a licensed physician. The shares still have to be transferred to a qualified licensed person within the six-month § 13407 window. The practical succession options are: an identified successor physician who has agreed (in advance) to take over; a sale of the practice within the six-month window; or a wind-down with patient records transferred to a successor provider or stored per California retention rules.

What if the six-month transfer deadline is missed?

The Medical Board (or other licensing board for chiropractic, dental, or other professions) has authority under § 13407 to suspend or revoke the corporation’s certificate of registration. The deadline is enforceable; boards do use it. The personal representative or trustee facing a deadline near the six-month limit should engage counsel immediately to either complete a transfer or seek an extension or alternative resolution. The corporation’s certificate, the practice’s ongoing payor enrollment, and the estate’s value all turn on getting this right.

This article provides general information about California law and is not legal, tax, or financial advice. Reading this article, contacting Bay Legal, PC, or sending information through baylegal.com does not create an attorney-client relationship. The information here focuses on California law and may not reflect the law of other jurisdictions. Statutes, regulations, agency guidance, and case law change; this article reflects the authors’ understanding as of the date of publication and may not reflect later developments. For advice about your specific situation, consult a licensed California attorney and, for tax questions, a CPA.