Does a Chiropractic Practice Need to Set up a Professional Corporation?

By Elidia C. Dostal, Partner

Chiropractic care continues to grow in practice and popularity. Chiropractors are primary contact practitioners that address musculoskeletal problems by treating, or adjusting, the spine with their hands. When a chiropractor decides to set up their own practice, it’s critical the business is set up correctly from the start. I receive a lot of inquiries from chiropractors about how they should incorporate their business. Licensed chiropractors in California may organize their private practice as either a sole proprietorship or a professional corporation. They cannot practice under a regular corporation or an LLC in California. As such, a separate entity for a California chiropractor must be set up as a professional corporation to be taxed as an S-corporation.

According to California law, a chiropractic corporation must be a corporation registered with the State Board of Chiropractic Examiners and they are pursuant to the Professional Corporation Act. A professional corporation is a legal structure that allows licensed professionals, such as doctors, lawyers, accountants, and in this case, chiropractors, to provide their services through a corporate entity. Professional corporations are governed by special provisions because the professionals that make up the organization are licensed and in regulated professions. Chiropractors are included in this group. Because legal regulations apply to these groups of professionals, their corporate structure differs from the general corporation. Additionally, California does not allow these professionals to limit their personal liability; hence prohibiting them from forming an LLC.

Another reason that chiropractors need to form a professional corporation is with respect to permissible shareholders and directors. Generally, only a professional licensed to practice the profession of the professional corporation may be a shareholder. For certain professions, such as chiropractors, however, other licensed professionals may hold shares, or be officers, directors, or professional employees, as long as shares owned by these other licensed professionals do not total more than 49 percent of all shares in the corporation.

Requirements also vary as to whether a chiropractor may be a shareholder of more than one professional corporation and whether a shareholder of a corporation may be another professional corporation or must be an individual. Additionally, the directors of some professional corporations must be licensed professionals. If you are a chiropractor, it’s best to work with an experienced business attorney who can sort through all these aspects of setting up your business for you, rather than focusing your time away from clients.

I typically advise chiropractors, as well as other professional corporations, to start practicing that classification at the start of the new year or within the last two weeks of the prior year for tax and business purposes. Specifically, this will help chiropractors avoid the California minimum franchise tax and still be formed by January 1. If you are a chiropractor and are setting up your own business in California, I recommend working with an experienced business attorney and starting the formation process now so you’ll be ready to start practicing in your professional corporation on January 1.

Elidia C. Dostal is a business transactional and compliance attorney and partner with Vanst Law LLC. She serves business clients who understand the importance of involving an attorney at the front end of business transactions and compliance issues to avoid the high cost of litigation or regulatory fines. Elidia brings an expert understanding of the importance of thinking ahead to avoid potential future liabilities.