Maryland Professional Corporation for Physicians Law

Corporations – Professional Corporation – Maryland

Related Maryland Legal Forms

MARYLAND CODE, Corporations and Associations, Titles 1, 2, and 3 (Maryland General Corporation Law)
MARYLAND CODE, Corporations and Associations, Title 4, Subtitle 1 (Maryland Professional Services Corporation Act)
MARYLAND CODE, Health Occupations, Titles 1 and 14

The practice of medicine in the State of Maryland is controlled by the rules and regulations of the Maryland State Board of Physician Quality Assurance. That practice is also subject to the statutory requirements of Maryland General Corporation Law and, more specifically, the Maryland Professional Services Corporation Act.

Neither the Maryland General Corporation Law nor the Maryland Professional Service Corporation Act restricts the jurisdiction of the State Board of Physician Quality Assurance or the interpretation or application of any law pertaining to standards of professional conduct. Further, the provisions of the Maryland General Corporation Law apply to professional corporations unless the context of the provisions requires otherwise or specific provisions of the Maryland Professional Service Corporation Act governing specific classes of corporations provides otherwise.

The primary differences between a “regular” corporation and a “professional corporation” are:

Generally, a professional corporation may be organized solely for the purpose of rendering professional services within a single profession. If a professional corporation is organized to render professional services in more than one profession, then that combination of professional services must be authorized by the licensing laws applicable to each profession in the combination.

A professional corporation has the same powers as statutorily set out for other corporations unless restricted by the Professional Services Corporation Act (see discussion below).

A professional corporation may be a promoter, general partner, member, associate, or manager of a partnership, joint venture, trust, or other entity if the entity is engaged solely in rendering professional services.

A professional corporation may not render a professional service or engage in an activity other than the professional service authorized by its articles of incorporation. This restriction does not prohibit a professional corporation from investing its funds in real estate, mortgages, securities, or any other type of investment.

A professional corporation may not, through any means, engage or participate in the active management of any entity, association, or venture whose business purpose is not reasonably related to the rendering of a professional service authorized by its articles of incorporation.

A corporation may render professional services in Maryland only through individuals licensed or otherwise authorized in Maryland to render the professional services. This restriction does not:

1. Require an individual employed by a professional corporation to be licensed to perform services for the corporation if a license is not otherwise required;

2. Prohibit a licensed individual from rendering professional services in his individual capacity although he is a stockholder, director, officer, employee, or agent of a professional corporation; or

3. Prohibit an individual licensed in another state from rendering professional services for a professional corporation in Maryland if not that individual is not prohibited by her/his licensing unit in that State with jurisdiction over the professional service.

The name of a professional must comply with general corporation law. Additionally, the name must contain the surname of one or more stockholders of the corporation unless:

1. The name of the corporation is approved by the State Board of Physicians;

2. A certificate of authorization for use of the corporate name is issued to the corporation or to its incorporator by State Board of Physicians; and

3. The certificate of authorization for use of the corporate name issued by the State Board of Physicians is attached to the articles of incorporation document in which the name is used.

A professional corporation may issue stock, rights, and options to purchase stock to:

1. An individual who is authorized by law in this or another state to render a professional service named in the corporation’s articles of incorporation;

2. A general partnership in which all the partners are qualified persons with respect to the professional corporation and in which at least one partner is authorized by law in Maryland to render a professional service named in the corporation’s articles of incorporation; and

3. A professional corporation, domestic or foreign, provided that the professional corporation receiving the stock is organized to perform the same professional service as the professional corporation issuing the stock.

If the State Board of Physicians considers it necessary to prevent a violation of the ethical standards of the profession, the Board may, by regulation, restrict or condition, or revoke in part, the authority of a professional corporation to issue stock subject to its jurisdiction.

Stock issued in violation of this restriction or of a regulation adopted by the State Board of Physicians is void from the date issued.

The following statement must appear in conspicuous type on each stock certificate issued by a professional corporation: “The transfer of stock of a professional corporation is restricted by the Maryland Professional Service Corporation Act and is subject to further restriction imposed from time to time by the licensing unit. Stock of a professional corporation is also subject to a statutory compulsory repurchase obligation.”

A stockholder of a professional corporation may transfer or pledge stock, fractional stock, and rights or options to purchase stock of the corporation only to a qualified person (an individual, professional corporation, or general partnership that is eligible to be issued stock by the professional corporation).

A transfer of stock made in violation of this restriction, except a transfer made by operation of law or by court judgment, is void.

A disqualified person is an individual or entity that for any reason is or becomes ineligible under to be issued stock by the professional corporation.

A professional corporation must acquire, or cause to be acquired by a qualified person, the stock of a stockholder, at a price that represents the fair value of the stock as of the date of death or disqualification of the stockholder or transfer of the stock if:

1. The stockholder dies;

2. The stockholder becomes a disqualified person; or

3. The stock is transferred by operation of law or court judgment to a disqualified person.

If the price for stock is determinable in accordance with the articles of incorporation or bylaws of the corporation, or by private agreement, that price controls. If the price is not determinable, determinable in accordance with the articles of incorporation or bylaws of the corporation, or by private agreement, the corporation must acquire the stock in accordance with the provisions of § 5-114.

If a disqualified person rejects the corporation’s purchase offer, either the disqualified stockholder or the corporation may commence a judicial to determine the fair value of the stock.

If the disqualification lasts less than 5 months from the date the disqualification or transfer occurs, then there is no requirement that the stock be purchased.

A professional corporation must pay pension benefits or other deferred compensation to a former stockholder if otherwise permitted by law.

A “disqualified stockholder” includes the personal representative of the estate of a deceased stockholder or a transferee as described in § 5-113.

If an acquisition of stock is required because of the death or disqualification of a stockholder, the professional corporation must send, by certified mail, postage prepaid, return receipt requested, a written notice to the disqualified stockholder, offering to purchase the stock at a price which the corporation represents to be the fair value of the stock as of the date of death, disqualification, or transfer. This offer notice must be accompanied by:

1. The corporation’s balance sheet for the fiscal year ending not more than 16 months before the effective date of the offer notice;

2. An income statement for that year;

3. A statement of changes in stockholders’ equity for that year; and

4. The latest available interim financial statements, if any.

The disqualified stockholder may send, by certified mail, postage prepaid, return receipt requested, a written notice to the corporation demanding that the corporation commence a proceeding to determine the fair value of the stock if:

1. The disqualified stockholder does not receive a written offer within 60 days after the date of disqualification, transfer, or appointment of the personal representative; or

2. The disqualified stockholder rejects the corporation’s offer within 30 days of receipt of the offer by the disqualified stockholder.

If the corporation fails to commence a proceeding, as requested, to determine the fair value of stock within 60 days of written notice of demand by a disqualified stockholder, the disqualified stockholder may commence a proceeding against the corporation to determine the fair value of the stock.

If the disqualified stockholder accepts the corporation’s offer, the corporation must make payment when the stockholder surrenders the stockholder’s stock. Unless a later time is agreed on, payment by the corporation and surrender of the stock by the stockholder shall occur within 60 days from the effective date of the offer notice.

If the disqualified stockholder fails to respond to the corporation’s offer within 30 days after delivery of the notice, the stockholder shall be deemed to have accepted the offer.

The corporation must cancel on the books of the corporation the stock of a disqualified stockholder and the disqualified stockholder shall have no further interest as a stockholder in the corporation other than the right of payment of the fair value of the if the corporation has not delivered an offer notice and the disqualified stockholder has not demanded that the corporation commence a proceeding to determine the fair value of the stock within 120 days of:

1. Appointment of a personal representative of a deceased stockholder; or

2. The date an acquisition of stock becomes required.

A proceeding to determine the fair value of stock must be filed in the circuit court for the county where the corporation’s principal office or registered office is located.

The corporation must make the disqualified stockholder a party to the proceeding as in an action against the stockholder’s stock.

A majority of the directors and all of the officers of a professional corporation, except the secretary and treasurer, must be qualified persons with respect to the corporation.

The number of directors in a professional corporation may be less than 3.

The officers of a professional corporation may be limited to president, treasurer, and secretary and an individual may hold more than one office.

Notwithstanding any other provision of law, an individual who holds more than one office in a professional corporation may act in more than one capacity to execute, acknowledge, or verify any instrument required to be executed, acknowledged, or verified by more than one officer.

Only a qualified person may be appointed a proxy to vote stock of a professional corporation.

A voting trust with respect to stock of a professional corporation is not valid unless all of the trustees of the trust are stockholders of the professional corporation.

Stock in a professional corporation may not be transferred into a trust, unless:

1. All settlors of the trust remain stockholders of the professional corporation for the duration of the trust; and

2. All trustees of the trust are individuals licensed in Maryland to render the professional service named in the professional corporation’s articles of incorporation.

If a settlor of stock in a professional corporation in a trust ceases to be a stockholder in the corporation, the settlor shall be deemed to be a disqualified stockholder and the corporation must acquire the stock held by the trust. The stock will be acquired as set out above concerning the death or disqualification of a stockholder.

The relationship between an individual rendering professional services as an employee of a professional corporation and the client or patient of the individual is the same as if the individual were rendering the services as a sole practitioner.

The relationship between a professional corporation and the client or patient for whom an employee of the corporation is rendering professional services is the same as that between the client or patient and the employee.

A privilege applicable to communications between an individual rendering professional services and the person receiving the services recognized under the law of Maryland is not affected because one of the parties is a professional corporation. This privilege applies to a professional corporation and to its employees in all situations in which it applies to communications between an individual rendering professional services on behalf of the corporation and the person receiving the services.

An individual who renders a professional service in Maryland as an employee of professional corporation is liable for a negligent or wrongful act or omission in which the individual personally participated to the same extent as if the individual rendered the service as a sole practitioner.

An employee of a professional corporation is not liable for a negligent or wrongful act or omission of another employee of the corporation unless the employee is negligent in appointing, supervising, or cooperating with the other employee.

A professional corporation whose employees perform professional services within the scope of their employment or within the scope of the employees’ apparent authority to act for the corporation is liable to the same extent as its employees.

The personal liability of a stockholder of a professional corporation is no greater in any respect than the liability of a stockholder of a corporation incorporated under the Maryland General Corporation Law.

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Inside Maryland Professional Corporation for Physicians Law