Practice Entities 101 / Lesson 02
Entity separation only works if the practice lives it
A California physician guide to records, money, contracts, clinical-control boundaries, and policy evidence that support an entity's real role.
A practice can have a professional corporation, an MSO, a property entity, and a public brand. The formation documents may be clean. The question becomes harder when someone asks who actually signed the lease, paid the staff, controlled the records, used the equipment, or accepted a patient-care decision.
A properly formed entity is separate from its owners, but a court can disregard that separation in particular circumstances. Consistent operations help support the entity's stated role. They do not guarantee a result, create medical-professional authority, or prove insurance coverage.
Use this page as an operating discipline: match the people, money, records, contracts, assets, and clinical authority to the entity map the practice says it uses.
Understand alter ego liability
Alter ego is a legal doctrine that can let a court disregard an entity's separate status in some cases. California courts examine unity of interest and ownership, and whether treating the entity as separate would lead to an inequitable result. The Associated Vendors decision lists factors courts have considered.
Those factors include mixed funds, personal use of entity property, weak records, shared operations, and inadequate capital. No single factor decides every case.
No single factor decides every case. Formation is the beginning, not the proof. Accounts, records, agreements, and daily conduct should match the actual legal structure.
Commingling means mixing personal and entity money or property. An owner may pay a family bill from the practice account. An owner may also deposit a practice check into a personal account. A repeated pattern can show that the owner did not treat the entity as separate.
Capital means money and other resources available to meet obligations. Adequacy is fact-specific. For a physician practice, identify the predictable obligations, access to funds, insurance deductibles or retentions, debt service, payroll, and contract commitments. Owner payments should not leave the entity unable to meet obligations it has undertaken.
Keep money and records separate
Use a separate bank account for each entity. Pay each entity's expenses from its own account. Document every salary, distribution, capital contribution, loan, reimbursement, and payment between entities. A payment error can happen; correct it transparently with a dated entry and supporting record rather than treating it as invisible.
Keep formation documents, ownership records, minutes or consents, licenses, tax records, and asset schedules for the correct entity. Record material decisions when they occur. Use the exact legal name and signer's capacity on invoices and agreements.
Reconcile each account and balance between entities on a regular schedule. Explain intercompany balances, shared costs, and reimbursements. A spreadsheet without source records is not enough during a dispute or diligence review.
When one entity uses another's property or staff, document the arrangement. A lease or services agreement should state the parties, duties, payment, insurance, data or access rights where relevant, and end conditions. Follow the agreement after both parties sign it.
A written lease is not enough when both entities ignore it. Send each invoice. Pay the rent. Record repairs and shared expenses. If the arrangement changes, amend the agreement rather than allowing a new practice to emerge through informal habits.
Sign in the correct capacity
A person can sign a contract for an entity or as an individual. The signature block should identify the entity and the signer's title. A personal guarantee is a promise to answer for another party's debt. It can create individual contractual exposure even when the entity is otherwise separate.
Review the complete contract before signing. Do not assume the entity name in the heading controls every promise. Indemnity is a duty to pay or protect another party against a specified loss. Identify each duty, guarantee, indemnity, right given up, and approval requirement.
An entity map does not transfer medical judgment to a manager, owner, or software vendor. Business and Professions Code section 2400 and Medical Board guidance preserve the professional-practice boundary. Do not use the entity structure as a substitute for a patient-care, supervision, delegation, or insurance analysis. Professional-liability coverage remains a policy-specific question.
Match insurance to each entity
Legal separation and insurance answer different questions. Entity law addresses who undertook an obligation and how the parties operated. Insurance addresses whether an issued policy may defend or pay a covered claim.
A named insured is a person or entity listed for coverage. Record every entity, location, employee group, vehicle, and activity. Compare that record with each policy's named insureds, insured definitions, coverage grant, exclusions, and endorsements. If a difference matters, ask the broker or authorized insurer what notice, underwriting review, or endorsement is required. Do not assume a request changes the policy.
Separate entities may need separate policies, schedules, or endorsements. An endorsement is a document that changes a policy. A property entity may need property and premises-liability coverage. A practice entity may need professional liability, general liability, employment, cyber, or other coverage. The actual role, issued form, and claim facts decide the analysis.
Recheck the whole operating map after an entity change
Complete these actions after each entity change.
- Update the current entity list.
- Open and use the correct accounts.
- Update contracts, licenses, and records.
- Confirm employees, clinical authority, property, records, and contracts under each entity.
- Ask the insurer or authorized representative what issued-policy change, if any, applies.
- Keep the issued endorsement or written confirmation with the policy record.
Review the entity list and policies each year. Correct routine errors transparently and record each correction.
Record the review date and responsible person. Save written confirmations with the related policy or contract.
Entity separation depends on consistent operations. Give insurers accurate information they request about how the practice operates. Keep the entity map, contracts, accounting record, and policy evidence current enough that a new owner, lender, lawyer, or claims professional can reconstruct what each entity actually did.