Last reviewed: October 2026
TL;DR — Key Takeaways
- The board needs at least three directors, with limited exceptions, and a director’s term generally may not exceed three years.
- Shareholders, directors and officers generally have to be licensed persons, with limited exceptions.
- In our reading, the duty clauses for an administrator or committee with unlicensed members should reserve to physicians the decisions the Medical Board says should be made by a physician.
- With two or more shareholders, a deceased shareholder’s shares must be sold and transferred within six months, and a disqualified shareholder’s within 90 days.
- A medical corporation needs no certificate of registration, but it keeps its exemption from the corporate practice bar only while it complies with the rules on medical corporations.
- Without a fictitious-name permit, the name is limited to present, prospective or former physician shareholders’ names; Medical Board guidance requires no permit for a physician’s name alone plus M.D.
- California’s 2025 private equity law (SB 351) bars covered private equity groups and hedge funds involved with physician practices doing business in California from interfering with physicians’ professional judgment.
A California professional medical corporation’s bylaws set its board, officers, meetings and votes under the General Corporation Law. They also have to fit three further layers. The first is the Moscone-Knox Act, which, with limited exceptions, reserves shares, board seats and officer posts to licensed persons. The second is the Medical Practice Act. The third is the Medical Board’s rule that the articles or bylaws set out how a deceased or disqualified shareholder’s shares are sold. Most governance is the owners’ choice. What the bylaws cannot do is conflict with those rules.
What bylaws are and who can change them
Bylaws are a corporation’s own rules for running itself. The General Corporation Law applies to professional corporations, except where its provisions conflict with or are inconsistent with the Moscone-Knox Act, and a medical corporation also answers to the Medical Practice Act. If you are still setting the corporation up, our page on forming and running a medical corporation in California covers that work.
The bylaws may contain any provision for managing the business and conducting the corporation’s affairs that does not conflict with law or the articles. The statute lists subjects they may cover, among them:
- the calling, notice and conduct of shareholders’, directors’ and committee meetings;
- the qualifications, duties and compensation of directors and the quorum for their meetings; and
- the appointment, duties, compensation and tenure of officers.
Bylaws may be adopted, amended or repealed either by approval of the outstanding shares or by approval of the board, except as the statute on the contents of bylaws provides. Subject to the statute’s limits, the articles or the bylaws may restrict or eliminate the board’s power to adopt, amend or repeal any or all bylaws. In a practice where not every physician owner sits on the board, that restriction is one way the owners keep the rulebook in their own hands.
Every corporation has to keep the original or a copy of its bylaws, as amended to date, at its principal office in California or, if its principal office is not in California, at its principal business office in California. The bylaws kept there have to be open to inspection by shareholders at all reasonable times during office hours. If the principal office is outside California and the corporation has no principal office in the state, it furnishes a copy of the bylaws on any shareholder’s written request.
How many directors the bylaws have to name
Unless the articles already state it, the bylaws set the number of directors, either as a fixed number or as a range between a stated minimum and maximum, where the maximum is no more than twice the minimum minus one. With a range, the exact number is fixed within the limits by approval of the board or the shareholders in the manner the bylaws provide, subject to the statute’s limits.
The number or minimum number of directors may not be less than three, with exceptions that fit a small practice. The number may be:
- one or two before shares are issued;
- one or two while the corporation has only one shareholder; and
- two while it has only two shareholders.
The Moscone-Knox Act builds on those exceptions. A professional corporation with one shareholder needs only one director, who is that shareholder and also serves as president and treasurer, and its other officers need not be licensed persons. A professional corporation with two shareholders needs only two directors, who are those two shareholders. The two shareholders between them fill the offices of president, vice president, secretary and treasurer. Separately, a shareholder of a medical corporation that renders professional services may itself be a medical corporation with only one shareholder, who must be a licensed person. The Medical Practice Act sets that exception notwithstanding Corporations Code sections 13401.5, 13403, 13406 and 13407. In that structure, the licensed person who is the corporate shareholder’s own shareholder may be an officer or director of the medical corporation that renders the services. That exception reaches only a medical corporation whose shareholder is itself a one-shareholder medical corporation, so it leaves the one- and two-shareholder rules above in place for every other professional corporation.
Changing the board’s size later takes a shareholder vote. After shares are issued, a bylaw that fixes or changes the number of directors, or that switches between a fixed and a variable board, may be adopted only by approval of the outstanding shares. A bylaw or an amendment to the articles that reduces the fixed or minimum number of directors below five cannot be adopted if either of these equals more than 16 2/3 percent of the outstanding shares entitled to vote:
- the votes cast against it at a meeting; or
- the shares not consenting, when the action is by written consent.
Our post on adding a physician partner to a California medical practice walks through the governance documents a new owner changes.
The Moscone-Knox rules the bylaws have to respect
Who may own a professional corporation is covered in the Moscone-Knox Act and who may own a California professional corporation. The question here is narrower: which of the Act’s rules the bylaws cannot write around. The Act turns on two defined terms. A licensed person is a natural person licensed under the Business and Professions Code, the Chiropractic Act or the Osteopathic Act to render the same professional services the corporation renders or will render. A disqualified person is a licensed person who, for any reason, becomes legally disqualified, temporarily or permanently, to render those services.
Licensed directors, officers and shareholders
Except as the Moscone-Knox Act’s minority rule and its board and officer rules allow, each shareholder, director and officer of a medical corporation, other than an assistant secretary or assistant treasurer, has to be a licensed person.
Shares may be issued only to a licensed person, or to a person licensed to render the same services where that person practices, and shares issued in violation of the rule are void, subject to the minority rule below. The Medical Practice Act adds one exception for a corporate owner. A shareholder of a medical corporation that renders professional services may itself be a medical corporation with only one shareholder. That one shareholder has to be a licensed person and may be an officer or director of the first corporation. The Medical Practice Act sets that exception notwithstanding Corporations Code sections 13401.5, 13403, 13406 and 13407. Where the medical corporation has a single shareholder who is a licensed person, it needs only one director, that shareholder, who also serves as president and treasurer.
The minority rule is the main exception. Listed licensed persons may be shareholders, officers, directors or professional employees of a medical corporation, as long as:
- the shares they own together do not exceed 49 percent of the corporation’s shares; and
- the number of them who own shares does not exceed the number of persons licensed by the governmental agency that regulates the corporation.
For a medical corporation, the list is licensed doctors of podiatric medicine, psychologists, registered nurses, optometrists, marriage and family therapists, clinical social workers, physician assistants and chiropractors. The list also takes in licensed acupuncturists, naturopathic doctors, professional clinical counselors, physical therapists, pharmacists, midwives and occupational therapists. The list limits ownership and office, not employment: any person licensed under Division 2 of the Business and Professions Code, the Chiropractic Act or the Osteopathic Act may be employed to render professional services by a medical corporation.
The three-year director term
A professional medical corporation may set in its articles or bylaws how its directors are selected and removed and their powers, duties and compensation, and each director’s term of office may not exceed three years. The exception is for a medical corporation with more than 200 shareholders. Its articles or bylaws may give terms of up to six years to directors who are officers, or who are responsible for managing all medical services at one or more medical centers. No more than half the board plus one may hold six-year terms.
Professional services only through licensed employees
A professional corporation may render professional services in California only through employees who are licensed persons; it may employ people who are not licensed, but they may not render the corporation’s professional services. The articles carry a related marker: they have to contain a specific statement that the corporation is a professional corporation within the meaning of the Moscone-Knox Act.
If you want to know how this applies to your own situation, call Bay Legal at (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or reach us through baylegal.com/contact-us.
What the bylaws cannot hand to an administrator
The Medical Board says certain health care decisions should be made by a physician licensed in California and would be the unlicensed practice of medicine if made by an unlicensed person:
- which diagnostic tests are appropriate for a particular condition;
- the need for a referral to, or consultation with, another physician or specialist;
- responsibility for the ultimate overall care of the patient, including the treatment options available; and
- how many patients a physician must see in a given period or how many hours a physician must work.
The Board adds business and management decisions that, because they control the practice of medicine, should be made by a licensed California physician and not by an unlicensed person or entity:
- control of the patient medical records and their contents;
- the selection, hiring and firing of physicians, allied health staff and medical assistants as it relates to clinical competence;
- the terms on which the practice contracts with third-party payers;
- coding and billing decisions for patient care services; and
- approval of the selection of medical equipment and supplies.
The Board says these decisions cannot be delegated to an unlicensed person, including a management services organization. A physician may consult unlicensed people on the business and management decisions, but has to keep the ultimate responsibility for, or approval of, each one.
In our reading, that sets the drafting rule: the duty clauses for a chief executive officer, a practice administrator or any committee with unlicensed members should reserve those decisions to the physician directors or a physician officer. They should also describe the administrator’s role as recommending, not deciding. The Medical Practice Act does not prohibit a nonlicensed person from using the business titles of executive vice president, chief executive officer or executive secretary, or any other title denoting an administrative function within the corporation. Separately, a shareholder may not enter into a voting trust, proxy or other arrangement that gives anyone other than another shareholder of the same corporation the power to vote the shares, and any such arrangement is void.
California’s 2025 private equity law and the practice decisions
California’s 2025 private equity law (SB 351) bars a private equity group or hedge fund involved in any manner with a physician practice doing business in California from interfering with the professional judgment of physicians in making health care decisions. Involvement in any manner includes involvement as an investor in the practice or as an investor in or owner of its assets.
The law’s definitions leave out investors who only contribute funds and take no part in managing the fund or group or its assets, or in any change in control of them, hospitals and hospital systems, their affiliates, and the entities they manage or control, and public agencies; the hedge fund definition also leaves out lenders that only provide debt financing secured by a health care facility’s assets.
The law also names practice decisions such a group or fund may not exercise control over or be delegated:
- owning or otherwise determining the content of patient medical records;
- selecting, hiring or firing physicians, allied health staff and medical assistants based in whole or in part on clinical competency or proficiency;
- setting the parameters under which the practice enters into contracts with third-party payers;
- setting the clinical competency parameters under which a physician enters into contracts with other physicians for the delivery of care;
- making decisions on the coding and billing of procedures for patient care services; and
- approving the selection of medical equipment and supplies for the practice.
The law also reaches the companies a fund controls. A private equity group or hedge fund, or an entity controlled directly, in whole or in part, by one, may not enter into a contract, agreement or arrangement with a physician practice doing business in California that would let it:
- interfere with physicians’ professional judgment in health care decisions; or
- exercise control over, or be delegated, those decisions.
A contract provision that violates the limits in subdivision (a) of section 1191, on interfering with clinical judgment and on control of practice decisions such as medical records, hiring, payer contracts, and coding and billing, is void, unenforceable and against public policy, and the Attorney General may seek an injunction and recover attorney’s fees and costs.
When a shareholder dies or becomes disqualified
Where a professional corporation has two or more shareholders and one of them dies or becomes a disqualified person, the Medical Board’s rule requires that shareholder’s shares to be sold and transferred. The shares have to go to the corporation, its shareholders or other eligible licensed persons, on terms they agree. The rule sets two deadlines:
- no later than six months after the death; and
- no later than 90 days after the shareholder becomes disqualified.
The Board’s rule sets no window for a corporation with only one shareholder. The Moscone-Knox transfer restriction still applies, so the shares may go only to a licensed person, a shareholder of the same corporation, a person licensed in the same profession where that person practices, or a professional corporation. The Act’s special repurchase rule applies only while at least one share stays outstanding, so it does not give a sole shareholder’s estate a way out through a buyback of the only share.
A transfer that breaks the restriction is void, except as the Act itself provides, and the minority rule for the listed professions remains an exception. For a medical corporation, the Medical Practice Act narrows the last item on the list: a corporate shareholder of a medical corporation has to be a medical corporation with only one shareholder, who is a licensed person.
The windows carry a consequence. Missing the 90-day window after a disqualification or the six-month window after a death takes a medical corporation out of compliance with the Medical Board’s rule. The corporation’s exemption from the corporate practice bar holds only while it complies with the statutes and regulations on medical corporations, so a missed window puts that exemption at risk.
Income of a medical corporation from professional services rendered while a shareholder is a disqualified person may not accrue in any manner to that shareholder or to the shareholder’s shares.
The Board’s rule requires these transfer terms to be set out in the corporation’s articles of incorporation or bylaws, and in our reading a shareholder agreement alone does not satisfy it. The corporation and its shareholders may, but need not, agree that shares a disqualified person sold to the corporation may be resold to that person if and when he or she again becomes an eligible shareholder. Where applicable, the share certificates of a professional corporation must contain an appropriate legend setting out the restrictions of that resale provision.
The probate side of a physician’s death, including the buy-sell agreement, is covered in how to transfer a medical practice through a California probate estate.
If you are getting ready for this step, we can help you check the papers and the timing first. Call (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or use baylegal.com/contact-us.
Certificates of registration, and why a medical corporation holds none
The Moscone-Knox Act uses a certificate of registration for some professions, but a professional corporation whose services are rendered by persons licensed by the Medical Board of California need not obtain a certificate to render those services.
For a corporation that does hold a certificate, one ground for suspending or revoking it is any ground for suspension or revocation that the Business and Professions Code specifies for the profession it is engaged in. The Act lists the others:
- all of its licensed shareholders become disqualified at the same time;
- its sole shareholder becomes disqualified;
- it knowingly employs or keeps a disqualified person;
- it violates an applicable rule or regulation of the agency that regulates its profession; or
- it violates a statute that applies to professional corporations.
Those grounds describe certificate holders. A professional corporation whose services are rendered by persons licensed by the Medical Board of California is not required to obtain a certificate of registration to render those services.
A medical corporation’s equivalent is its exemption. The Medical Practice Act’s corporate practice bar does not apply to a medical corporation practicing under the Moscone-Knox Act and the Medical Practice Act’s corporation article while it complies with those and the other statutes and regulations on such corporations. That condition is what gives the transfer windows above their weight.
What the Medical Practice Act adds: the corporation’s name
The exemption, the one-shareholder corporate owner and the administrative titles appear above. One more Medical Practice Act rule shapes the corporation’s paperwork: the name.
Under the Medical Board’s corporate name rule, unless the corporation holds a fictitious-name permit, a medical corporation’s name is limited to the name or surname of one or more of its present, prospective or former shareholders who are physicians. The Board’s permit guidance says no permit is needed when only the physician’s name or surname is used, followed by a designation such as M.D., Inc., Corporation, Professional Corporation or Medical Corporation. Other than a name in that form, a corporation that uses any other name, or any other words or names in addition to the shareholders’ names, has to obtain the permit.
The Medical Practice Act would otherwise bar some names a physician might practice under. A physician practicing alone or through a partnership, group or professional corporation may use such a name while the practice holds a current fictitious-name permit issued by the Division of Licensing. The Board issues the permit if it finds to its satisfaction:
- that the applicant or applicants or shareholders of the professional corporation hold valid and current licenses as physicians and surgeons;
- that the professional practice of the applicant or applicants is wholly owned and entirely controlled by the applicant or applicants; and
- that the name under which the applicant or applicants propose to practice is not deceptive, misleading, or confusing.
Bylaws or shareholder agreement
Some terms have to sit in the articles or the bylaws: the number of directors, and, under the Board’s rule, the death and disqualification transfer terms. Other terms the law leaves to agreement. The Board’s rule leaves the terms of the sale to what the parties agree. The resale to a shareholder who requalifies is an option the corporation and its shareholders may, but need not, adopt. Negotiated terms like these often sit in a shareholder agreement, and what a shareholder agreement does for a California corporation covers such agreements in general. Two cautions carry over. A voting arrangement that gives anyone other than another shareholder the power to vote the shares is void wherever it is written. And in our reading, a buyout clause in a shareholder agreement works alongside the bylaw that carries the Board’s windows, not in place of it.
When to rewrite the bylaws, and when the problem is elsewhere
Four signs suggest the bylaws themselves need work:
- The board size no longer matches the shareholder count, or the bylaws describe a board the corporation does not have.
- Director terms run past three years, or have no stated limit, in a corporation with 200 or fewer shareholders.
- The duty clauses give a chief executive officer, administrator or committee the final say over a decision the Board says should be made by a physician.
- Neither the articles nor the bylaws set out the death and disqualification transfer terms.
Sometimes the honest answer is that the bylaws are fine. If they track the statutes, rewriting them does not fix a problem that lives elsewhere. That problem might be:
- shares issued or transferred outside the permitted list;
- a management agreement that hands an outside company decisions the Board says a physician should make;
- share certificates without the resale legend where it applies; or
- a practice name used without a permit it needs.
In those cases the fix is in the share register, the contract, the certificates or the permit, and a new set of bylaws adds cost without closing the gap. If your practice is chiropractic rather than medical, forming a chiropractic professional corporation in California covers that profession’s steps, including its bylaws.
If you are deciding what to do next, we would rather talk it through early than after the fact. Call Bay Legal at (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or reach us through baylegal.com/contact-us.
When we review a medical corporation’s bylaws, we look at:
- the board size against the shareholder count;
- the director terms;
- the officer roles against the licensed-person rule;
- the duty clauses for any administrator or committee; and
- whether the articles or bylaws carry the transfer terms for a death or disqualification.
Then we look at the share register, the certificates and the management agreements beside them.
Frequently Asked Questions
Does a medical corporation need three directors?
Not in every case. The number or minimum number of directors may not be less than three, except in these cases:
- It may be one or two before shares are issued.
- It may be one or two while the corporation has only one shareholder.
- It may be two while the corporation has only two shareholders.
A medical corporation with one shareholder needs only one director, that shareholder, who also serves as president and treasurer.
Can a nurse or physician assistant own shares in a medical corporation?
Yes, within limits. Registered nurses, licensed physician assistants and the other professionals the Moscone-Knox Act lists may be shareholders of a medical corporation. All their shares together may not exceed 49 percent of the corporation’s shares. The number of them owning shares may not exceed the number of persons licensed by the governmental agency that regulates the corporation.
Can a practice administrator be an officer of a medical corporation?
Except as the Moscone-Knox Act’s minority rule allows, and apart from the other officers of a one-shareholder corporation, each officer other than an assistant secretary or assistant treasurer has to be a licensed person. An unlicensed administrator may use a title such as chief executive officer or executive vice president. In our reading, the bylaws should still reserve to physicians the decisions the Medical Board says should be made by a physician.
What happens to a physician’s shares when the physician dies?
Where the corporation has two or more shareholders, the Medical Board’s rule requires the shares to be sold and transferred no later than six months after the death. The rule requires the transfer to go to the corporation, its shareholders or other eligible licensed persons, on agreed terms.
The Board’s rule sets no window for a corporation with only one shareholder; our post on transferring a practice through a probate estate covers that case.
Does a medical corporation need a certificate of registration?
No. A professional corporation whose services are rendered by persons licensed by the Medical Board of California need not obtain one. What it has instead is an exemption from the corporate practice bar for a medical corporation practicing under the Moscone-Knox Act and the medical corporation article. The exemption holds only while the corporation complies with those statutes and the other statutes and regulations on medical corporations.
Legal References
- Cal. Corp. Code § 211 (adoption, amendment and repeal of bylaws)
- Cal. Corp. Code § 212 (contents of bylaws; number of directors; reducing the board)
- Cal. Corp. Code § 213 (keeping the bylaws; shareholder inspection)
- Cal. Corp. Code § 13401 (definitions of licensed person and disqualified person; no certificate of registration for Medical Board licensees)
- Cal. Corp. Code § 13401.5 (licensed minority shareholders, officers, directors and professional employees)
- Cal. Corp. Code § 13403 (General Corporation Law applies; one- and two-shareholder corporations; medical corporation director terms)
- Cal. Corp. Code § 13404 (professional corporation statement in the articles)
- Cal. Corp. Code § 13405 (professional services only through licensed employees)
- Cal. Corp. Code § 13406 (issuance of shares; voting trusts and proxies)
- Cal. Corp. Code § 13407 (transfer of shares)
- Cal. Corp. Code § 13408 (grounds for suspension or revocation of a certificate of registration)
- Cal. Bus. & Prof. Code § 2402 (medical corporations exempt from the corporate practice bar of § 2400)
- Cal. Bus. & Prof. Code § 2408 (licensed shareholders, directors and officers; single-shareholder medical corporation as shareholder; administrative titles)
- Cal. Bus. & Prof. Code § 2409 (income attributable to a disqualified shareholder)
- Cal. Bus. & Prof. Code § 2415 (fictitious-name permit)
- Cal. Code Regs., tit. 16, § 1344 (corporate name)
- Cal. Code Regs., tit. 16, § 1345 (shares on death or disqualification; resale; certificate legend)
- Medical Board of California, practice information on the corporate practice of medicine
- Medical Board of California, fictitious-name permit guidance
- SB 351 (2025-2026), Stats. 2025, ch. 409; Cal. Health & Safety Code § 1191
