If you operate a friendly PC structure, there is a document in your stack that almost nobody outside the deal team ever reads. It goes by several names: restricted transfer agreement, stock transfer restriction agreement, succession agreement, continuity agreement. Whatever your counsel called it, it is the document that decides what happens to the professional corporation's equity when the physician owner dies, loses a license, quits, or becomes uncooperative.
On March 30, 2026, the California Attorney General filed an amicus brief taking the position that a particular version of this document violates California's prohibition on the corporate practice of medicine. The brief is not binding. It is also the clearest public statement we have about how the AG's office reads the doctrine, and it arrived in the middle of an enforcement posture that has already produced a settlement requiring a company to tear down and rebuild its structure.
If you have one of these agreements and you have not read it since it was signed, this is the moment.
What a restricted transfer agreement actually does
The friendly PC model exists because most states will not let a non-clinical company own a medical practice. So the practice is owned by a licensed physician, and a management services organization provides everything that is not the practice of medicine under a management services agreement.
That creates an obvious problem for the MSO. The physician owner holds the equity in the entity that holds the patient relationships, the payer contracts, and the licenses. If that physician walks away, dies, or decides to keep the practice for himself, the MSO's entire investment sits inside an entity it does not own.
The restricted transfer agreement is the answer. In its typical form it does three things. It prevents the physician from selling, pledging, or transferring the shares to anyone without consent. It gives someone the right to compel a transfer when a triggering event occurs, with triggers usually including death, disability, loss of licensure, and termination of the physician's underlying employment or services agreement. And it lets the MSO designate the successor physician who receives the equity, often at a nominal price.
Read on its own, none of that is exotic. Buy-sell provisions with transfer restrictions and call rights are ordinary corporate practice. The issue is what happens when you combine a compelled transfer right, an MSO-designated successor, and a trigger the MSO itself controls.
Why California is different
California's corporate practice prohibition comes out of the Medical Practice Act and bars any unlicensed person or corporation from practicing medicine in the state. The Medical Board has long published guidance on which decisions must remain with the licensed physician, and the doctrine has been enforced through consumer protection authority as well as licensing authority.
Two things changed the temperature. Senate Bill 351 was signed on October 6, 2025 and took effect January 1, 2026, codifying much of the state's long-standing corporate practice guidance into statute rather than leaving it to guidance documents and case law. AB 1415 added further transparency and oversight obligations around corporate involvement in California health care operations. Together they signal a legislature that has decided this is a subject for statute.
Then came enforcement. The Attorney General's settlement with Carbon Health, announced in June 2026, resolved allegations including corporate practice violations and required the company to unwind and rebuild its arrangements rather than simply promise better behavior going forward. I wrote about that settlement separately, and the pairing matters: the AG is not only articulating a legal theory, he is obtaining remedies that require structural change.
What the Attorney General actually argued
The case is Art Center Holdings, Inc. v. WCE CA Art, LLC, pending before California's Second Appellate District. At the trial level, the court held that an MSO's exercise of a continuity-type agreement to compel a transfer of the professional corporation's equity violated the corporate practice doctrine, and that this justified appointing a receiver over the practice.
The Attorney General filed on behalf of neither party, under his consumer protection authority, urging the appellate court to affirm that analysis. Three positions in the brief are the ones to pay attention to.
First, a contractual right allowing an unlicensed corporation to replace the physician owner with a physician of the corporation's choosing means the corporation effectively owns and controls the practice. The AG's reasoning is behavioral rather than formal: a physician who can be divested of ownership at any moment will act accordingly, whether or not the right is ever exercised.
Second, and this is the line that should get every operator's attention, the mere existence of the provision can constitute the violation. Under the AG's theory it does not matter whether the MSO ever invoked the replacement right.
Third, where the physician owner cannot terminate the management services agreement without losing ownership of the practice, the MSO has impermissible control. That reframes the analysis around the physician's practical exit options rather than around the four corners of the clinical carve-outs.
The brief also takes the position that liability is not confined to the MSO. It can extend to the physician owners of the professional corporation on an aiding and abetting theory. Physicians who signed on as friendly owners believing the arrangement was somebody else's legal risk should read that sentence twice.
The competing view
The California Medical Association filed its own brief agreeing that the MSO's exercise of the replacement right on these particular facts violated the doctrine, while urging the court not to adopt a categorical prohibition. The CMA's position is a facts-and-circumstances test: look at whether the arrangement actually compromises physician independence rather than banning a category of provision outright.
That distinction is the whole ballgame. A facts-and-circumstances ruling leaves properly drafted continuity provisions available. A categorical ruling does not, and it would reach a very large number of structures currently operating in California and drafted by firms that considered them market standard.
The appeal has not been decided. An amicus brief is not law. Anyone telling you the friendly PC model is dead in California is ahead of the record, and anyone telling you nothing has changed is not reading the room.
What to review in your own documents
Pull the transfer or continuity agreement and the management services agreement together, because the AG's theory reads them as one arrangement.
Look at who holds the right to compel a transfer, and on what triggers. A trigger tied to death, disability, or loss of licensure is a different animal from one tied to termination of an employment agreement that the MSO controls. Look at who designates the successor physician, and whether the physician owner has any say. Look at whether the physician can terminate the management services agreement, on what notice, and what happens to his ownership if he does. If the honest answer is that terminating the MSA costs him the practice, that is the exact fact pattern the AG described.
Then look at the operational record rather than the paper. Who actually sets clinical protocols, who controls staffing decisions for clinical personnel, who decides visit length and panel size, who owns the medical records, who signs off on clinical policy. Structures fail on the operating record as often as on the documents, because the documents describe an arrangement nobody is following.
What to do about it
If you are operating in California, treat this as a review cycle rather than a panic. The productive version of that review asks whether the MSO's legitimate interest, which is protecting its investment from a physician who walks away with the entity, can be secured through means that do not amount to a standing right to replace the owner at will.
There are alternatives worth examining with counsel: narrowing triggers to genuinely objective events, removing unilateral successor designation, giving the physician meaningful termination rights under the MSA with an orderly transition mechanism, shortening MSA terms, and separating the clinical and non-clinical decision rights with more precision than a boilerplate carve-out paragraph provides. Whether any given approach holds depends on the final ruling and on your specific facts.
If you are operating outside California, do not file this away as somebody else's problem. States watch each other on corporate practice, California's legislative activity has been unusually visible, and multi-state operators generally build one document set and deploy it everywhere. The document that fails in California is probably in your Texas and New Jersey stack too.
How I help
At Camino Strategy Group we build and maintain PC/MSO structures across all fifty states, which means reviewing exactly these documents against exactly this kind of development. If you have a friendly PC structure and you are not certain how your transfer and management agreements read against California's current posture, reach out and we will walk you through it.
Our CPOM compliance checklist and the state-by-state ownership map are both free to use in the meantime.
References
- Art Center Holdings, Inc. v. WCE CA Art, LLC, No. B338625 (Cal. Ct. App.), California Attorney General amicus brief filed March 30, 2026
- California Medical Association amicus brief, April 2026
- California Senate Bill 351 (2025), effective January 1, 2026
- California Assembly Bill 1415 (2025)
- California Attorney General settlement with Carbon Health Technologies, announced June 26, 2026
- California Medical Board guidance on the corporate practice of medicine: https://www.mbc.ca.gov/