The Corporate Practice of Medicine Doctrine in California

Section 2400 does not say that a corporation may not employ a physician. It says something stranger and broader: that corporations and other artificial legal entities have no professional rights, privileges, or powers at all. Almost everything difficult about physician employment in California follows from working out what a legal person with no professional powers may nonetheless lawfully do.

What section 2400 actually says

The operative sentence is nine words long. “Corporations and other artificial legal entities shall have no professional rights, privileges, or powers.” It is worth noticing what form that takes. It is not drafted as a prohibition on an activity — it does not say a corporation shall not practise medicine, or shall not employ a physician, or shall not bill for professional services. It is drafted as a status disability. The entity is declared incapable of holding the rights that a licence confers.

That drafting choice explains most of what is otherwise puzzling about the doctrine. A prohibition on an activity can be complied with by not doing the activity, and evaded by relabelling it. A disability cannot be relabelled around, because the question it asks is never what the arrangement is called but where the professional power actually sits. A management agreement that gives an unlicensed company the practical authority to decide which patients are seen, on what equipment, at what price, and by whom, has vested professional powers in an entity that the Legislature says cannot hold them — whatever the recitals say about the physician retaining clinical autonomy.

The second sentence of section 2400 is a narrow proviso and is frequently mis-stated. It permits the Division of Licensing, in its discretion and after such investigation and review of documentary evidence as it may require, to approve the employment of licensees on a salary basis by licensed charitable institutions, foundations or clinics — and only if no charge for professional services rendered to patients is made by that institution, foundation or clinic. Three conditions are stacked: the employer must be a licensed charitable institution, foundation or clinic; the employment must be salaried; and the institution must not charge for the professional services. An entity that bills for the physician’s professional work is outside the proviso even if it is a nonprofit. The proviso is also permissive rather than automatic — it confers discretion to approve, which means approval is a thing that must be sought and given, not a category one falls into.

The statute still names the Division of Licensing, a body that no longer exists in that form. Under section 2002 the term “Board” means the Medical Board of California, and references to the Division of Medical Quality are likewise deemed to refer to the Board. Reading section 2400 requires that translation; the disability itself is unaffected by it.

The five statutory exceptions in section 2401

Section 2400 does not stand alone in its own article. Section 2401 opens each of its five subdivisions with the words “Notwithstanding Section 2400” and sets out the settings in which an entity may employ licensees, charge for their professional services, or both.

Subdivision (a) permits a clinic operated primarily for the purpose of medical education by a public or private nonprofit university medical school, approved by the Board or the Osteopathic Medical Board of California, to charge for professional services rendered to teaching patients by licensees who hold academic appointments on the faculty of the university — if the charges are approved by the physician and surgeon in whose name they are made. What it grants is the power to charge, conditioned on the named physician’s approval of the charge.

Subdivision (b) permits a clinic operated under subdivision (a) of Health and Safety Code section 1206 to employ licensees and charge for their professional services. Subdivision (c) does the same for a narcotic treatment program operated under Health and Safety Code section 11876 and regulated by the State Department of Health Care Services. Each carries an express proviso: the clinic or program shall not interfere with, control, or otherwise direct the professional judgment of a physician and surgeon in a manner prohibited by section 2400 or any other law.

Subdivision (d) is drawn so narrowly that it reads as a single-institution statute. It reaches a hospital owned and operated by a licensed charitable organization that offers only pediatric subspecialty care, that before 1 January 2013 employed licensees on a salary basis, and that had not charged for professional services rendered to patients. Such a hospital may charge from 1 January 2013 provided five conditions are met: it does not increase the number of salaried licensees by more than five each year; it does not expand its scope of services beyond pediatric subspecialty care; it accepts each patient needing its scope of services regardless of ability to pay, including whether the patient has any form of health care coverage; the medical staff concur by an affirmative vote that the licensee’s employment is in the best interest of the communities served; and it does not interfere with, control, or otherwise direct professional judgment.

Subdivision (e) permits a federally certified critical access hospital to employ licensees and charge for their professional services on two conditions: an affirmative medical staff vote that the employment is in the best interest of the communities served, and no interference with professional judgment. Earlier versions of this subdivision carried a sunset; the operative text verified for this page does not.

The pattern across the five is the point. Four of them attach an express non-interference proviso to the permission they grant. The Legislature separates two questions that commercial structuring habitually merges — who may employ a physician and bill for the work, and who may direct the physician’s judgment — and permission on the first has never been permission on the second. That reading, visible in text enacted in and before 2013, is what the Legislature restated for a different class of owner in 2026.

Section 2052 is the companion, and it is criminal

Section 2400 supplies the incapacity. Section 2052(a) supplies the offence. It reaches any person who practises or attempts to practise, or who advertises or holds himself or herself out as practising, any system or mode of treating the sick or afflicted in this state, or who diagnoses, treats, operates for, or prescribes for any ailment, blemish, deformity, disease, disfigurement, disorder, injury, or other physical or mental condition of any person, without at the time holding a valid, unrevoked and unsuspended certificate or being authorised under some other provision of law. The Attorney General has pleaded sections 2052 and 2400 together as a single cause of action for the unlicensed practice of medicine and the corporate unlicensed practice of medicine, and has sought injunctive relief on that footing.

The pairing matters for scope. Section 2051 authorises the holder of a physician and surgeon’s certificate to use drugs or devices in or upon human beings, to sever or penetrate the tissues of human beings, and to use any and all other methods in the treatment of diseases, injuries, deformities and other physical and mental conditions. Read together, the two sections mark out a field of conduct that only a licensed natural person may enter, and section 2400 then denies the entity any share of it.

The three things the doctrine is protecting

The Board states the purpose in operational terms rather than as a slogan, and the formulation is useful because each limb is testable. The prohibition, in the Board’s words, ensures that persons who make decisions affecting the provision of medical care, generally or indirectly: understand the quality-of-care implications of those decisions; possess the professional ethical obligation to place the patient’s interests foremost; and are subject to the full panoply of the Board’s enforcement powers under the Medical Practice Act.

The third limb is the one most often left out of commercial analysis, and it is the one that does the most work. A licensee who subordinates clinical judgment can be disciplined. An unlicensed corporation that does the same thing cannot be — there is no certificate to revoke, no probation to impose, no practice monitor to appoint. The doctrine is in part a jurisdictional rule: it keeps the decision-maker inside the reach of the regulator. That is why an arrangement can offend the doctrine without any patient having been harmed, and why “the physician retained final say on clinical matters” is a weaker answer than it sounds. If the entity is making the decisions that shape what clinical choices exist, the regulator has lost its subject.

Who may lawfully employ the physician

The general rule the Board applies is stated broadly: with limited exceptions, a corporation may not engage in the practice of medicine either directly or indirectly, including by contracting with physicians or other health care professionals to provide health care services. A general business corporation may not engage physicians to provide medical services even where the physicians operate as independent contractors rather than employees. The Board’s guidance is explicit that the ban generally precludes for-profit corporations — other than licensed medical corporations and Knox-Keene plans — from providing medical care through either salaried employees or independent contractors.

Independent-contractor status is therefore not a workaround; the Board names it as covered. Nor is a fictitious name permit a cure. The Board’s guidance states that a physician aids and abets the unlicensed practice of medicine when he works, whether as an employee or as an independent contractor, for at a medical clinic owned by unlicensed persons, even if the clinic holds a fictitious name permit issued by the Medical Board. The permit is a naming instrument. It is not a licence to practise and it does not confer professional powers on the entity that holds it.

The professional medical corporation

Section 2402 is the principal exception and it is conditional on its face. It provides that the provisions of section 2400 do not apply to a medical or podiatry corporation practising pursuant to the Moscone-Knox Professional Corporation Act — Part 4 of Division 3 of Title 1 of the Corporations Code, commencing with section 13400 — and to the corporations article of the Medical Practice Act, when such corporation is in compliance with the requirements of these statutes and all other statutes and regulations now or hereafter enacted or adopted pertaining to such corporations and the conduct of their affairs.

That closing clause is the part that gets skipped. The exception is not a status conferred once at incorporation. It is contingent on continuing compliance, and it is drawn as widely as it could be — all other statutes and regulations pertaining to the corporation and to the conduct of its affairs. A medical corporation whose cap table has drifted out of compliance, or whose officers include a person the statute requires to be licensed, is not a partially compliant professional corporation. It is a corporation to which section 2400 applies again, with the consequence that its provision of medical services is the corporate practice of medicine.

Corporations Code section 13401 supplies the definitions the exception runs on. “Professional services” means any type of professional services that may lawfully be rendered only pursuant to a licence, certification or registration authorised by the Business and Professions Code. A “professional corporation” is a corporation organised under the General Corporation Law engaged in rendering professional services in a single profession. A “licensed person” is a natural person duly licensed under the Business and Professions Code to render the same professional services as are or will be rendered by the professional corporation of which he or she is, or intends to become, an officer, director, shareholder or employee. Each definitional limb is a place where an arrangement fails: an entity, not a natural person; a licence in a different profession; a person who holds no licence at all.

The 51/49 rule, stated precisely

Section 2408 provides that except as provided in Corporations Code sections 13401.5 and 13403, each shareholder, director and officer of a medical or podiatry corporation — other than an assistant secretary or assistant treasurer — shall be a licensed person as defined in section 13401.

Section 13401.5 is the multidisciplinary exception, and it is narrower than the shorthand suggests. Notwithstanding section 13401(d), the licensed persons it lists may be shareholders, officers, directors or professional employees of the designated professional corporations, subject to two simultaneous limits: the sum of all shares owned by those licensed persons must not exceed 49 per cent of the total number of shares, and the number of those licensed persons owning shares must not exceed the number of persons licensed by the governmental agency regulating the designated professional corporation. For a medical corporation the listed allied licensees historically include licensed podiatrists, licensed psychologists, registered nurses, licensed optometrists, licensed clinical social workers, licensed physician assistants and licensed chiropractors, among others; the enumeration has been amended over time, so the operative list is the one in the current text of the section rather than any recollection of it.

Two consequences are commonly missed. First, the second limb is a headcount, not a percentage: two physicians cannot bring in five allied shareholders even if the five together hold only 40 per cent. Second, the 49 per cent is a ceiling for listed licensees, not a general minority-investor allowance. There is no percentage of a medical corporation that an unlicensed person may own. A cap table with a single unlicensed share is not 99 per cent compliant; it is outside section 2408, which means it is outside section 2402, which means section 2400 applies.

The Attorney General has pleaded exactly this failure mode: a corporation providing medical services whose sole shareholders were unlicensed, alleged to have failed to comply with section 13401(d) and section 13401.5(a) and with section 2408, on the ground that the owners were not licensed physicians and were not even among the other licensed health care professionals permitted to own up to 49 per cent of the shares. The Board’s disciplinary hook for the same facts is section 2286, aiding and abetting a violation of the Professional Corporation Act.

What the exception does not extend to

The Moscone-Knox route is available to a corporation. It is not available to a limited liability company rendering professional medical services, because the statutory scheme routes professional practice through the professional corporation. The Board’s enforcement materials treat lay-owned LLCs holding themselves out as providers as squarely within the prohibition, and the pleadings name LLC entities alongside corporations as unlicensed entities that could not lawfully own the clinical operation. Structuring advice that reaches for an LLC because it is administratively simpler is reaching for the wrong instrument.

Management services organisations

The MSO is where the doctrine is actually litigated, because it is the structure that separates money from licence without separating control. The Board’s position is blunt: management services organisations — corporations that charge fees to select, schedule, secure and pay for medical services ordered by physicians — are often engaged in the unlawful corporate practice of medicine. Note the verbs. Selecting, scheduling, securing and paying for services ordered by a physician are administrative functions on their face. The Board’s objection is not that they are clinical but that in combination they constitute control of the practice.

That is made explicit. Consistent with its protective goals, the Board reads the prohibition to encompass not only direct medical decisions but business and administrative decisions that have medical implications. The worked example in the Board’s own guidance is the prospective purchase of radiological equipment: a decision shaped by business considerations (cost, gross billings to be generated, space and employee needs), by medical considerations (type of equipment needed, scope of practice, skill levels required of operators, medical ethics), or by an amalgam of both — and the interfacing of those variables may itself require medical training, experience and judgment. The doctrine does not partition decisions into clinical and administrative buckets. It asks whether the decision has medical implications, and if it does, who is making it.

The thirteen indicators

The Board publishes a list of factors that could indicate the unlicensed corporate practice of medicine where a physician has agreed to serve as employee, independent contractor, supervising physician or medical director of a nonprofessional medical corporation. Read as a checklist against a real management services agreement, most of the thirteen describe clauses that a competent commercial lawyer would draft without a second thought:

Determining the type and quality of medical facilities, equipment and supplies, or in fact providing only a licence to the doctors to use the employing corporation’s facilities.
Hiring and firing clerical and administrative personnel, setting fees for medical services, creating billing procedures and receiving payment for medical services.
Notwithstanding any written language to the contrary, the hiring, firing and payment of salaries to medical personnel including physicians and nurses.
Setting the doctors’ compensation as a flat percentage of gross receipts.
Subordinating the doctors’ authority or medical decision-making to corporation personnel not licensed in California.
Lending the doctors’ medical or DEA licences to unlicensed individuals to purchase drugs, pharmaceuticals and biologics.
Restricting the doctors from ownership or control of original medical records, and providing for unlicensed individuals or entities to hold custody, control and transfer of patient records.
Restricting the doctors from providing services at locations not owned by the employing corporation.
Restricting the doctors from hiring or soliciting certain employees or independent contractors.
Providing malpractice insurance in coverage amounts and by companies chosen by the employing corporation.
Providing that the management services agreement can be assigned to any party acquiring all or substantially all of the employing corporation’s assets.
Restricting the doctors from voting, selling or transferring their shares in any professional corporation without the employing corporation’s permission.
Controlling the mode, content and contracts for advertising and website content.

The phrase “notwithstanding any written language or agreements to the contrary” appears inside indicator three, and it is the interpretive key to the whole list. The Board is telling the reader that it will look at who in fact hires, fires and pays, not at which entity the agreement nominates as employer. Indicators eleven and twelve are the ones that most often surprise: an assignment clause and a share-transfer restriction are the standard mechanics by which an investor secures the value of a practice, and both appear on the Board’s list of things that tend to show the investor is controlling it.

The list is styled as indicators, not elements. No single item is dispositive, and the Board frames them as factors that could indicate the violation. But an arrangement that ticks eight of thirteen is not a close case dressed up in good recitals.

Percentage-of-gross compensation and section 650

Indicator four — setting compensation as a flat percentage of gross receipts — sits at the junction of the corporate practice doctrine and the referral-payment rules, and the two should not be run together. Section 650(a) makes unlawful the offer, delivery, receipt or acceptance by a licensee of any rebate, refund, commission, preference, patronage dividend, discount or other consideration, whether in money or otherwise, as compensation or inducement for referring patients, clients or customers, irrespective of any membership, proprietary interest or co-ownership in the person to whom they are referred.

Section 650(b) then carves out a defined space: the payment or receipt of consideration for services other than the referral of patients, based on a percentage of gross revenue or a similar contractual arrangement, is not unlawful if the consideration is commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided. Percentage-of-revenue management fees are therefore not per se unlawful under section 650; they are lawful on a condition of commensurate value, and unlawful as a corporate-practice indicator on a separate axis if they operate to set the physician’s own compensation.

The Board’s guidance states the referral case at its sharpest: a contract under which a physician’s compensation is tied to the number of patients he admits to a hospital is invalid as violating section 650. That is a volume-of-referrals term, not a management fee, and it fails on section 650 whether or not anyone is exercising corporate control.

Division 1.7: the 2026 private-equity statute

Senate Bill 351 (Cabaldon), Chapter 409 of the Statutes of 2025, was approved by the Governor and filed with the Secretary of State on 6 October 2025. It added Division 1.7 to the Health and Safety Code, commencing with section 1190, under the heading “Private Equity or Hedge Fund Ownership of Health Care Practices,” operative 1 January 2026.

It does not amend section 2400, and it says so. Section 1191(g) provides that the section does not narrow, abrogate, or otherwise lower the bar on the corporate practice of medicine or dentistry as set forth in the Business and Professions Code or the Corporations Code, or any other applicable state or federal law. Division 1.7 is a floor laid beneath the existing doctrine for a defined class of owner. Everything above still applies to a wider class.

Who is covered

Section 1190 defines the two covered entities. A hedge fund is a pool of funds managed by investors for the purpose of earning a return on those funds, regardless of the strategies used to manage them, including pools managed or controlled by private limited partnerships. A private equity group is an investor or group of investors who primarily engage in the raising or returning of capital and who invest, develop, or dispose of specified assets.

Both definitions exclude passive contributors — natural persons or entities that contribute or promise to contribute funds but otherwise do not participate in the management of the fund or group or its assets, or in any change in control. Both exclude hospitals and hospital systems owning one or more licensed hospitals as defined in Health and Safety Code section 1250(a) or (b), their affiliates as defined in Corporations Code section 150, and entities they manage or control. Both exclude public agencies as defined in Government Code section 6500, including clinics, outpatient settings, health facilities and ambulatory surgical centres they own, operate, manage, control or are otherwise affiliated with.

One exclusion appears in only one definition. Entities that solely provide or manage debt financing secured in whole or in part by the assets of a health care facility — including banks and credit unions, commercial real estate lenders, bond underwriters and trustees — are carved out of “hedge fund.” No equivalent clause appears in the definition of “private equity group.” The asymmetry is on the face of the enacted text.

The two prohibitions, which do not work the same way

Section 1191(a) contains two lists. The first, at paragraph (1), prohibits a covered entity involved in any manner with a physician or dental practice doing business in the state — including as an investor in the practice or as an investor in or owner of its assets — from interfering with the professional judgment of physicians or dentists in making health care decisions, including: determining what diagnostic tests are appropriate for a particular condition; determining the need for referrals to, or consultation with, another physician, dentist, or licensed health professional; being responsible for the ultimate overall care of the patient, including treatment options available to the patient; and determining how many patients a physician or dentist shall see in a given period of time or how many hours a physician or dentist shall work.

The last of those deserves attention. Patient volume and working hours are, in the ordinary commercial understanding, scheduling and staffing terms. The Legislature has placed them inside the definition of interference with professional judgment.

The second list, at paragraph (2), prohibits the covered entity from exercising control over, or being delegated the power to do, any of: owning or otherwise determining the content of patient medical records; selecting, hiring, or firing physicians, dentists, allied health staff, and medical assistants based, in whole or in part, on clinical competency or proficiency; setting the parameters under which the physician, dentist or practice shall enter into contractual relationships with third-party payers; setting the clinical competency or proficiency parameters under which a physician or dentist shall enter into contractual relationships with other physicians or dentists for the delivery of care; making decisions regarding the coding and billing of procedures for patient care services; and approving the selection of medical equipment and medical supplies for the practice.

Section 1191(b) forecloses the structural answer: the corporate form of the practice as a sole proprietorship, a partnership, a foundation, or a corporate entity of any kind shall not affect the applicability of the section.

The contracting prohibition, and what is void

Section 1191(c)(1) reaches the agreement itself. A covered entity, or an entity controlled directly, in whole or in part, by one, shall not enter into a contract or other agreement or arrangement with a physician or dental practice doing business in the state if the contract, agreement or arrangement would enable the person or entity to interfere under paragraph (1) or to exercise control over or be delegated the powers set out in paragraph (2). Under section 1191(c)(2), any provision within a contract or other agreement that violates subdivision (a) is void, unenforceable, and against public policy.

The remedy operates on the provision, not on the instrument. A management services agreement with two offending clauses is not thereby a nullity; those clauses are.

The safe harbour reaches only one of the two lists

Section 1191(h) provides that the section does not prohibit an unlicensed person or entity from assisting, or consulting with, a physician or dental practice with respect to the decisions and activities described in paragraph (2) of subdivision (a), provided that the physician or dentist retains the ultimate responsibility for, or approval of, those decisions and activities.

The cross-reference is the whole of it. The safe harbour is drawn to the paragraph (2) list — records, staffing, payer contracting, coding and billing, equipment selection. There is no corresponding permission to assist or consult on the paragraph (1) matters. On the face of the statute a management company may help design a coding policy that the physician approves; nothing in Division 1.7 permits it to advise on how many patients a physician should see or how many hours to work, because that conduct is classified as interference with professional judgment rather than as a delegable power.

Restrictive covenants

Section 1191(d) separately voids competition and non-disparagement clauses in contracts for the management of a practice, or for the sale of its real estate or other assets, where the counterparty is a covered entity. It operates on instruments other than the physician’s employment agreement and is not a restatement of Business and Professions Code section 16600; it is treated on restrictive covenants.

One enforcer

Section 1191(e) provides that the Attorney General shall be entitled to injunctive relief and other equitable remedies a court deems appropriate for enforcement of the section, and shall be entitled to recover attorney’s fees and costs incurred in remedying any violation. Section 1192 makes the division severable.

Division 1.7 names the Attorney General and stops. It does not state a private right of action, and it creates no new disciplinary ground against the licensee. A physician’s own exposure on the same facts continues to run where it ran before — sections 2264 and 2286, and the corporate-practice doctrine that section 1191(g) expressly preserves. Section 1191(f) states the legislative purpose: to ensure that clinical decisionmaking and treatment decisions are exclusively in the hands of licensed health care providers, and to safeguard against nonlicensed individuals or entities exerting influence or control over care delivery.

What the new division does not do

It does not reach unlicensed owners who are neither private equity groups nor hedge funds. The lay individual who owns a clinic outright — the fact pattern in the precedential decision discussed below — is outside Division 1.7 and remains squarely inside section 2400. The older doctrine is the broader one.

Nor does it make compliant private-equity ownership lawful. Section 1191(g) preserves the section 2400 bar and the Moscone-Knox ownership rules in terms. An arrangement can satisfy every clause of section 1191 and still fail section 2408 because an unlicensed person holds shares in the medical corporation. Compliance with Division 1.7 is not a defence to the corporate practice of medicine.

Enforcement posture in 2026

The doctrine described above was, for most of its life, enforced through Medical Board discipline against individual licensees. In the first half of 2026 the Attorney General took three actions in roughly three months that together mark a change in where the pressure falls.

On 30 March 2026 the office filed an amicus curiae brief in Art Center Holdings, Inc. v. WCE CA Art, LLC, a private dispute pending before the Second District Court of Appeal, urging affirmance of a trial-court holding that contractual provisions permitting a management services organisation to replace a practice’s physician-owner violate the corporate practice prohibition. On 7 May 2026 the office announced a settlement with a private-equity-owned dental support organisation over the corporate practice of dentistry and false advertising, for $2 million in penalties and $300,000 in patient restitution. On 26 June 2026 it announced a settlement with a healthcare technology company, its affiliated professional medical corporations and its co-founder and former chief executive, for $4.5 million in combined penalties and a required reorganisation of the friendly-PC arrangement.

Their legal weight should not be overstated. An amicus brief is an advocacy position and settles nothing; the appeal was pending when last verified. Settlements resolve disputed claims without adjudication and both were announced subject to court approval, which was not verified as at 16 August 2026. None is a judicial construction of section 2400, and none creates new law.

What they do show is the enforcement theory the office is willing to advance, and it tracks the analysis above closely. The conduct challenged is the allocation of control through contract rather than any failure of care; the target is the arrangement rather than the treatment; and in the June settlement an individual was named personally alongside the entities. The transactional detail is set out on private equity and the medical practice, and the matters are tracked on the enforcement desk.

How the doctrine reaches the individual licensee

Everything above concerns the entity. Section 2264 is how the same facts reach the physician, and it does so on terms that make advice about market practice worthless as a defence.

The section provides that the employing, directly or indirectly, the aiding, or the abetting of any unlicensed person to engage in the practice of medicine or any other mode of treating the sick or afflicted which requires a licence to practise constitutes unprofessional conduct. A violation requires no showing of either knowledge or intent on the part of the practitioner: Khan v. Medical Board (1993) 12 Cal.App.4th 1834, 1844–1845. The objective is protection of the public from treatment by unlicensed and presumably unqualified persons: Newhouse v. Board of Osteopathic Examiners (1958) 159 Cal.App.2d 728, 734.

The asymmetry that creates is the practical centre of gravity of this whole subject. The entity’s exposure is to injunction, penalty and unfair competition liability — civil remedies against a defendant with no licence to lose. The physician’s exposure is disciplinary and effectively strict. A licensee who enters an unlawful structure on advice that it is how the market is organised cannot answer a section 2264 charge by proving they did not know, because knowledge is not an element of it.

Section 2286 supplies the parallel ground for aiding and abetting a violation of the Professional Corporation Act, which is how a defective cap table under section 2408 becomes the physician’s problem rather than only the corporation’s.

The Board’s principal application of section 2264 in this area is to physicians serving as medical director of a lay-owned business, a proposition carried by Precedential Decision No. MBC-2007-01-Q, In the Matter of the Accusation Against Joseph F. Basile, M.D. That decision, the scope-of-practice authority it restates, and what a directorship commits a physician to are treated on who controls clinical judgment.

How the doctrine is enforced

There is no single corporate-practice cause of action. There are five tracks, and a given fact pattern usually sits on several at once.

Injunction and civil remedies

Section 125.5 supports an injunction against violations of the Business and Professions Code, with temporary restraining orders available under sections 125.7 and 125.8. Section 2311 supports an injunction against violations of the Medical Practice Act, and the Board may obtain one without the undertaking ordinarily required, a public entity being exempt under Code of Civil Procedure section 995.220. Section 656 supports an injunction against violations of the rebate and referral provisions commencing at section 650.

Unfair competition and false advertising

Section 17200 is available, but only in the hands of the Attorney General, a district attorney, or certain city attorneys and county counsel under sections 17204 and 17204.5. Injunctive relief, restitution and civil penalties are available under sections 17203 and 17206, with additional penalties where the acts are perpetrated against seniors or disabled persons under section 17206.1, and investigative costs and attorney’s fees recoverable under section 17206(e) where the action is brought at the request of a Department of Consumer Affairs agency. Section 17500 covers false and misleading advertising on a parallel footing, with relief under sections 17535 and 17536. The advertising track matters more than it looks: holding a lay-owned clinic out to the public as a properly licensed medical clinic owned and operated by physicians has been charged as false advertising and, separately, as taking compensation for drawing patients in violation of section 650.

Licence discipline

Against the licensee, the Board proceeds under section 2234 for unprofessional conduct, section 650 for unlawful rebates for referrals, section 2264 for aiding and abetting unlicensed practice, section 2285 for use of a false or fictitious name without a permit, and section 2286 for Moscone-Knox violations. Section 2227 sets the range of outcomes: revocation, suspension not exceeding one year, probation with costs of monitoring, or such other action as the Board deems proper. Section 2229 fixes the priority — protection of the public is the highest priority, rehabilitation is to be pursued wherever possible, and where the two are inconsistent, protection is paramount.

Citation and fine

Cite-and-fine authority under title 16, California Code of Regulations sections 1364.10, 1364.11 and 1364.13 is potentially available against both licensed and unlicensed entities. Citable offences include section 119 (loan of a licence), section 125 (conspiracy with an unlicensed person), section 650, section 2052, section 2054 (false use of “M.D.” or “doctor”), section 2264, section 2285, section 2286 and section 17500. Fines run from $100 to $2,500, and up to $5,000 in certain circumstances under regulation 1364.11(c). These are small numbers. Their significance is that a citation is a recorded finding that can be produced in a later proceeding, as the surgery-centre matter shows.

Criminal referral

Practising medicine without a licence and aiding and abetting the unlicensed practice of medicine are both criminal offences under section 2052. False advertising is a crime under section 17500.

Testing a structure against the doctrine

The questions that decide these cases are not the ones the documents are drafted to answer. Five are worth asking directly.

Who is the employer in fact? Not which entity the agreement names, but who hires, fires and pays the physicians and nurses. Indicator three disregards written language to the contrary, so the answer has to be traced through payroll, offer letters and termination authority rather than through the contract’s definitions section.

Who owns the records? Custody, control and transfer of original patient records sitting with an unlicensed entity is indicator seven, and it is also the practical mechanism by which a practice becomes unable to leave.

Who sets the fee schedule? Fee-setting appears in indicator two. It is also one of the few functions the Basile facts show a physician performing, in a case the Board still decided against him — which is a caution against treating any single retained function as sufficient.

Is the exception continuously satisfied? Section 2402 is conditioned on compliance with Moscone-Knox and every statute and regulation pertaining to the corporation and the conduct of its affairs. Ownership and officer composition therefore need to be verified as a live state, not as a closing condition.

What happens on a change of control? Indicators eleven and twelve address assignment of the management agreement and restrictions on the physician’s ability to vote, sell or transfer shares. The transaction documents that make an investment saleable are the ones most likely to demonstrate that the investor holds the professional powers.

What this page does not decide

Three boundaries should be explicit. First, this page states the corporate-practice doctrine and the entity-formation rules that qualify it. It does not state the separate federal and state fraud-and-abuse regimes that apply to the same transactions, nor the health-care transaction notice requirements that may apply to a change of control on their own terms. Those are separate analyses with separate triggers.

Second, the enumerated list of allied licensees permitted to hold minority shares in a medical corporation under section 13401.5 has been amended repeatedly. The two structural limits — the 49 per cent cap and the headcount cap — are stable; the membership of the list is not, and it should be read in the current text rather than relied on from any secondary summary, including this one.

Third, the exceptions stated here are those verified against operative text: the charitable-institution proviso in section 2400, the five subdivisions of section 2401, the Moscone-Knox route in section 2402, and Knox-Keene plans as identified in the Board’s guidance. Subdivisions of section 2401 have carried sunset dates in earlier versions, and an arrangement that depends on any of them should be checked against the current text on its own terms rather than relied on from a summary, including this one.

Fourth, Division 1.7 is stated from the chaptered text of SB 351. It has been operative since 1 January 2026 and no judicial construction of it is cited here, because none was verified in writing this page. How courts will read “primarily engage in the raising or returning of capital,” or the boundary between assisting under section 1191(h) and controlling under section 1191(a)(2), is not settled by the text alone.

Sources

Cal. Bus. & Prof. Code § 2400 — statutory text; corporations and other artificial legal entities have no professional rights, privileges or powers; charitable institution proviso.
Cal. Bus. & Prof. Code § 2052(a) — unlicensed practice; text as quoted in Medical Board of California Precedential Decision No. MBC-2007-01-Q, Legal Conclusion 2.
Cal. Bus. & Prof. Code § 2051 — scope of the physician and surgeon’s certificate, as quoted in the same decision.
Cal. Bus. & Prof. Code § 2401(a)–(e) — five statutory exceptions: university medical school teaching clinics, Health & Safety Code § 1206(a) clinics, narcotic treatment programs under Health & Safety Code § 11876, the pediatric-subspecialty charitable hospital, and federally certified critical access hospitals. Four carry express non-interference provisos.
Cal. Health & Safety Code Division 1.7, §§ 1190–1192 — added by SB 351 (Cabaldon), Chapter 409, Statutes of 2025, chaptered text; approved and filed 6 October 2025; operative 1 January 2026. Definitions at § 1190; prohibitions, contract voidness, restrictive-covenant ban, Attorney General enforcement, purpose and non-abrogation at § 1191; severability at § 1192.
Cal. Bus. & Prof. Code § 2402 — disapplication of section 2400 to a medical or podiatry corporation practising under Moscone-Knox while in compliance.
Cal. Bus. & Prof. Code § 2408 — shareholders, directors and officers must be licensed persons, except as provided in Corp. Code §§ 13401.5 and 13403.
Cal. Corp. Code §§ 13400–13410 — Moscone-Knox Professional Corporation Act; § 13401 definitions; § 13401.5 (49 per cent cap and headcount limit).
Cal. Bus. & Prof. Code § 650(a)–(b) — referral consideration prohibited; percentage-of-gross-revenue arrangements permitted for non-referral services where commensurate with value.
Cal. Bus. & Prof. Code §§ 2264, 2286, 2234, 2227, 2229, 2285 — disciplinary provisions.
Cal. Bus. & Prof. Code §§ 125.5, 125.7, 125.8, 2311, 656 — injunctive relief; Code Civ. Proc. § 995.220 (public entity exempt from undertaking).
Cal. Bus. & Prof. Code §§ 17200, 17203, 17204, 17204.5, 17206, 17206.1, 17500, 17535, 17536 — unfair competition and false advertising, as identified in the Medical Board’s enforcement guidance. Cal. Bus. & Prof. Code §§ 119, 125, 2054 and 16 Cal. Code Regs. §§ 1364.10, 1364.11, 1364.13 — citable offences and fine range.
Cal. Bus. & Prof. Code § 2002 — “Board” means the Medical Board of California; the basis for reading references to the Division of Licensing in § 2400. Cal. Health & Safety Code § 1250, Cal. Corp. Code § 150 and Cal. Gov. Code § 6500 — cross-referenced inside the § 1190 definitions. Cal. Bus. & Prof. Code § 16600 — referenced for contrast only; treated on restrictive covenants. Not read at source for this page.
Medical Board of California, Enforcement Actions re Unlicensed Corporate Practice of Medicine (agenda material, 5 May 2011) — summary of law, thirteen indicators, and enforcement options.
California Department of Justice, Office of the Attorney General — Carbon Health settlement (26 June 2026) and Aspen Dental settlement (7 May 2026), both subject to court approval; amicus curiae brief in Art Center Holdings, Inc. v. WCE CA Art, LLC filed 30 March 2026, appeal pending. Press releases consulted; the underlying judgments and brief were not read at source.
Medical Board of California Precedential Decision No. MBC-2007-01-Q, In the Matter of the Accusation Against Joseph F. Basile, M.D., designated precedential effective 27 July 2007 under Gov. Code § 11425.60 and 16 CCR § 1364.40 — medical directorships over lay-owned businesses; treated on who controls clinical judgment.
Khan v. Medical Board (1993) 12 Cal.App.4th 1834, 1844–1845 — no knowledge or intent required under § 2264.
Newhouse v. Board of Osteopathic Examiners (1958) 159 Cal.App.2d 728, 734 — protective objective of § 2264.
Medical Board of California v. Siegel, Superior Court of California, County of Contra Costa, complaint for preliminary and permanent injunction under Bus. & Prof. Code §§ 125.5, 656, 2052, 2311 and 2400 — corporate unlicensed practice and Moscone-Knox causes of action as pleaded by the Attorney General.