Definition
A Professional Corporation (PC) is a special legal entity created for licensed professionals, including physicians. Think of it as a legal “suit of armor” for your practice. This structure protects your personal assets—like your home and savings—from the business debts and general liabilities of the practice, such as a broken lease or an employee lawsuit.
This protection does not extend to professional liability. You remain personally responsible for your own medical malpractice, which is covered by malpractice insurance, not the corporate structure.
Why This Matters to Healthcare Providers
The most important feature of a PC in a potential sale is its ownership restriction. In most states, due to the Corporate Practice of Medicine (CPOM) doctrine, only licensed physicians can own shares in a PC. This rule dictates the type of buyers you can partner with and how the transaction must be structured, especially when the buyer is a hospital or private equity firm.
Example in Healthcare M&A
Scenario: Dr. Evans runs a successful urology practice structured as a PC. A private equity firm wants to acquire her practice to build a larger regional platform. The PE firm, not being owned by physicians, is legally barred from buying the shares of Dr. Evans’s PC.
Application: Instead of a simple stock sale, the transaction is structured as an Asset Purchase. The PE firm forms a new Management Services Organization (MSO) that buys all the practice’s non-clinical assets—the equipment, the office lease, the brand name, and patient records. Dr. Evans retains ownership of her original PC, which is now essentially an empty shell that employs her and her clinical staff.
Outcome: The MSO handles all business operations and pays the PC a fee for providing professional medical services. This two-company “Friendly PC-MSO” model allows the PE firm to control the business economics while Dr. Evans’s PC maintains clinical control, satisfying state law. Dr. Evans receives the proceeds from the asset sale and signs a new employment agreement with her PC, which is in turn contracted by the MSO.
Related Terms
The structure of your practice sale has major implications for your after-tax proceeds. Learn about our Tax-Efficient Sale Structures →
About the SovDoc M&A Glossary
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Frequently Asked Questions
What is a Professional Corporation (PC)?
A Professional Corporation (PC) is a special legal entity created for licensed professionals, including physicians. It acts as a legal ‘suit of armor’ that protects the personal assets of the practitioners, such as their home and savings, from business debts and general liabilities of the practice.
Does a PC protect against professional malpractice liability?
No, a PC does not protect against professional malpractice liability. Medical professionals remain personally responsible for their own malpractice, which is covered by malpractice insurance rather than the corporate structure.
Why is ownership restriction important in a Professional Corporation?
Ownership restriction is important because, due to the Corporate Practice of Medicine (CPOM) doctrine, only licensed physicians can own shares in a PC in most states. This restriction affects potential buyers and the structuring of transactions, especially when the buyer is a hospital or private equity firm.
How can a private equity firm acquire a practice structured as a PC despite ownership restrictions?
A private equity firm cannot buy the shares of a PC owned by physicians. Instead, the transaction is structured as an Asset Purchase where the firm forms a Management Services Organization (MSO) that purchases all non-clinical assets of the practice. The original PC retains clinical ownership, while the MSO handles business operations, allowing compliance with state laws.
What is the ‘Friendly PC-MSO’ model in healthcare M&A?
The ‘Friendly PC-MSO’ model involves the private equity firm’s MSO buying non-clinical assets while the physician-owned PC retains clinical services. The MSO pays the PC a fee for medical services, allowing the PE firm to control business economics and the physician to maintain clinical control, thus satisfying legal requirements.