Starting a healthcare practice with a partner is different from starting one on your own. You need an ownership structure that complies with healthcare laws while clearly defining how the owners will work together, make decisions, share ownership, and handle major changes down the road.
Jackson LLP advises healthcare professionals and entrepreneurs forming practices with two or more owners, including professional corporations (PCs) or professional limited liability companies (PLLCs) with multiple owners, multi-member LLCs for healthcare businesses, and group practices with more complex ownership arrangements.
Whether you are co-owning a medical practice with another licensed professional or bringing a non-licensed founder into the broader business structure, we can build the legal framework before ownership disagreements become expensive problems.
Forming a Healthcare Practice With Multiple Owners
When two or more people start a healthcare practice together, the entity itself is only the beginning. The owners also need governing documents that establish how the practice will operate.
For a professional practice, that may mean forming a PLLC with multiple owners or another professional entity permitted under applicable state law. LLC and PLLC structures in healthcare also require attention to professional licensing, ownership restrictions, and the type of services the practice will provide.
Jackson LLP works with healthcare professionals to address:
- Ownership percentages and contributions
- Management and voting rights
- Roles and responsibilities of each owner
- Allocation of profits and losses
- Initial and future capital contributions
- Restrictions on transferring ownership
- Admission of future owners
- Buy-in and buyout terms
- Deadlock resolution
- What happens if an owner retires, dies, becomes disabled, loses a license, or leaves the practice
Your governing documents should establish how the owners will make decisions and what happens when circumstances change.
If you are forming a practice with only one owner, LLC and corporation formation may be the more appropriate starting point, rather than the shared-ownership structure addressed on this page.
PLLC With Multiple Owners: Ownership and Governance Matter
A PLLC with multiple owners can provide a legal structure for physicians and other licensed professionals who want to practice together, and the operating agreement is a critical element.
A medical practice operating agreement should establish the rules that govern the relationship among the owners. Those rules can address everyday management as well as major decisions that could fundamentally change the practice.
For example, the owners may need to decide:
- Does every owner have an equal vote?
- Are voting rights based on ownership percentage?
- Which decisions require unanimous approval?
- Who controls hiring, contracting, and financial decisions?
- How are owner compensation and distributions determined?
- What happens when the owners disagree?
- Can an owner sell or transfer an interest?
- Can a new owner be admitted without everyone’s consent?
These questions become particularly important when owners have different levels of financial investment, clinical involvement, or management responsibility.
The operating agreement should reflect the actual relationship you intend to have with your partners rather than a generic template. The choice between an LLC and PLLC also depends on the type of healthcare practice, the owners, and applicable state law, which makes choosing the right entity for a healthcare practice part of the broader formation analysis.
Co-Owning a Medical Practice Requires More Than Dividing the Equity
Two owners may initially agree to split a practice 50/50 and assume everything else will work itself out. That can be a problem.
Even practices with strong relationships can eventually face disagreements about hiring, expansion, compensation, spending, clinical services, acquisitions, or whether to sell the practice. Without a mechanism for resolving those disagreements, a deadlock can prevent the practice from making important decisions.
Jackson LLP can structure governance provisions that establish:
- Which decisions require majority, supermajority, or unanimous approval
- Which owners control particular areas of the practice
- How disagreements are escalated
- Whether mediation or another dispute-resolution process is required
- What happens when the owners reach an irreconcilable deadlock
- Whether a buyout mechanism can be triggered
These provisions are much easier to negotiate when the owners are getting along. Waiting until a dispute occurs can leave everyone negotiating from very different positions.
Adding an Owner to an Existing Healthcare Practice
Shared ownership sometimes begins long after you open. An established practice may eventually decide to bring an associate or another healthcare professional into ownership.
Before completing that transaction, you need to determine whether the existing entity can legally accommodate another owner and whether the proposed owner is eligible to hold an interest in the practice.
The transaction may involve:
- Restructuring the existing entity
- Issuing or transferring an ownership interest
- Establishing a buy-in price
- Determining the new owner’s percentage
- Revising the operating agreement or bylaws
- Establishing voting and management rights
- Addressing compensation during the transition
- Updating buy-sell and transfer provisions
When an existing practice is considering a new owner, legal guidance for adding a partner to a medical practice can address the entity, ownership, buy-in, compensation, and agreement issues before the transaction is finalized.
What Happens When a Healthcare Practice Owner Leaves?
The owners should decide what happens at the end of the relationship before the relationship begins. A well-structured multi-member practice should anticipate events such as:
- Retirement
- Death
- Disability
- Loss or restriction of a professional license
- Voluntary departure
- Termination of an owner’s employment
- An owner’s desire to sell their interest
- A disagreement that makes continued co-ownership impractical
Buy-sell provisions can establish who has the right or obligation to purchase an owner’s interest, how the interest will be valued, and how the purchase will be paid.
Vesting provisions can also be useful when ownership is earned over time rather than granted entirely at the start. Transfer restrictions can prevent an owner from selling an interest to someone who is not legally permitted or otherwise appropriate to become an owner.
These provisions are often incorporated into the operating agreement itself, giving the owners a predetermined process for handling a departure instead of leaving the terms to be negotiated during a stressful transition. A buy-sell agreement for a healthcare practice can establish those rights and obligations before a triggering event occurs.
Ownership Restrictions Can Change the Structure
State laws may restrict who can own a medical practice or other professional healthcare entity. Depending on the profession and state, an entity may need to be owned by individuals with professional licenses. This matters when the proposed owners do not all have the same professional credentials.
When All Owners Are Licensed
If two or more appropriately licensed healthcare professionals want to form a group practice together, Jackson LLP can evaluate the applicable ownership rules and structure the professional entity and governing documents accordingly.
The analysis can become more complicated when the owners have different licenses or intend to provide different types of professional services. Forming a group practice should account for those differences before the entity is established.
When One Founder Is Not Licensed
Sometimes the people starting a healthcare venture together do not all have professional licenses.
For example, a physician may want to launch a practice with a non-licensed entrepreneur who will provide capital, technology, marketing, staffing, real estate, or other administrative resources. In a state with corporate practice restrictions, the non-licensed founder may not be permitted to own the professional practice directly.
That does not necessarily mean the parties cannot work together. Instead, the structure may involve a physician-owned professional entity and a separately owned management services organization (MSO).
The distinction between clinical ownership and administrative ownership needs to be carefully structured. Corporate practice of medicine restrictions, fee-splitting rules, the Stark Law, the Anti-Kickback Statute, and state-specific requirements can all affect how the arrangement is designed.
Ownership Transfers Need Special Attention in Healthcare
An ordinary ownership agreement may not adequately address a healthcare practice because the identity of the owner can affect whether the practice is legally permitted to operate. Transfer restrictions can therefore serve two purposes: protecting the owners’ agreed-upon relationship and preserving compliance with healthcare ownership laws.
In certain MSO structures, restricted ownership-transfer provisions can also protect the relationship between the management company and the professional entity. A restricted stock transfer agreement in healthcare can limit transfers and address changes in ownership of a professional entity when the parties need additional protection around who can become an owner.
What Jackson LLP Handles for Multi-Member Healthcare Practices
Jackson LLP works with healthcare professionals and healthcare entrepreneurs to structure shared ownership arrangements from the beginning and address ownership changes as practices grow.
Depending on your situation, our work may include:
- Forming a PLLC, LLC, or other appropriate entity
- Structuring a group practice
- Drafting operating, partnership, or shareholder agreements
- Establishing ownership percentages
- Structuring voting and decision-making authority
- Creating deadlock-resolution provisions
- Drafting buy-sell and buyout provisions
- Establishing vesting requirements
- Restricting ownership transfers
- Structuring the admission of a new owner
- Reviewing the legal implications of adding a partner
- Evaluating ownership eligibility under state law
- Structuring professional entities alongside MSOs
- Drafting or reviewing agreements between professional entities and management companies
We can also coordinate the formation documents with the contracts and governance provisions that will determine how your practice actually operates.
Jackson LLP advises healthcare professionals and entrepreneurs on multi-member practice formation, governance, ownership restrictions, partner admissions, and succession planning. We begin with a free 15-minute consultation, followed by a written proposal and flat-fee pricing for most projects.
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Frequently Asked Questions About Multi-Member Healthcare Practice Formation
Can two physicians own a medical practice together?
Yes. Two or more physicians can often co-own a medical practice, but the entity and ownership structure must comply with the laws of the state where the practice operates. The governing agreement should also address ownership percentages, decision-making, compensation, transfers, and what happens when one owner leaves.
What should a medical practice partnership agreement include?
A medical practice partnership agreement should address ownership percentages, voting and management rights, financial contributions, compensation and distributions, responsibilities, ownership transfers, dispute resolution, deadlock procedures, and buyout or succession provisions.
Can a non-licensed person own part of a medical practice?
It depends on the state, profession, and structure. Some states restrict ownership of professional healthcare entities to appropriately licensed individuals. When direct ownership is restricted, a separate management services organization may provide a compliant way for a non-licensed founder or investor to participate in the administrative side of the venture.
How do you add a partner to an existing medical practice?
The first step is to review the existing entity and determine whether the proposed owner is legally eligible to hold an interest. The transaction may then require a restructuring, ownership transfer or issuance, buy-in terms, and revisions to the practice’s governing documents.
What happens to a partner’s ownership if they leave a medical practice?
The practice’s governing documents should establish what happens when an owner leaves. Buy-sell provisions can determine whether the practice or remaining owners can purchase the departing owner’s interest, how the interest is valued, and how the purchase is paid.
Why does a multi-member healthcare practice need a deadlock provision?
A deadlock provision gives owners a predetermined process for resolving situations where they cannot agree on an important decision. Without one, a disagreement between equal owners can prevent the practice from taking necessary action or force the owners into a costly dispute.
Related Resources
Adding a Partner to Your Medical Practice: Legal Steps Before You Sign Anything
Adding a partner to a medical practice requires more than drafting an agreement. Your entity structure, ownership eligibility, and financial terms must align before negotiations begin. Addressing these elements early reduces legal risk and prevents disputes.
Restricted Stock Transfer Agreements: What You Need to Know
A restricted stock transfer agreement can prevent your medical director’s departure from throwing your management services organization (MSO) into chaos. Discover whether such an agreement can benefit you.
Why You May Need a Buy-Sell Agreement for Your Healthcare Practice
What happens to your business partners’ ownership interests if they die or leave the practice? A buy-sell agreement can help you control the possibilities.