How to structure equity ownership with clinical partner as an MSO?
November 18, 2024
by an intermediary from The College of New Jersey in Princeton, NJ, USA
Hello everyone, great to be a part of this community!
My partner and I currently own a franchise called Ellie Mental Health and so far, have three clinics open here in Central NJ.
NJ is a CPOM (corporate practice of medicine) state which means my partner and I run the MSO (providing marketing, ops, HR support) and had to partner with a licensed clinic director to run/own the separate professional LLC governed by an MSA. The clinic director is currently salaried ($130k/year) with benefits and a very small revenue share of 0.5%. She oversees all three clinics. We're currently tinkering with the idea of eliminating the revenue share and offering her true equity ownership. Here are my questions/concerns.
1. How do we issue her equity ownership if she "owns" the clinical entity on paper?
2. Do we issue her phantom equity in our MSO? Any conflict of interest there since we're supposed to have clear delineation between MSO and Professional LLC?
3. We don't want to entertain profit sharing because it's yet another thing I have to track and prove accuracy over which can cause issues. I want to avoid that and also brings me back to question #2 re: conflicts of interest.
I know the most logical answer is to retain an attorney to help us but I figured I'd start here in an attempt to gain insight before dropping a few thousand dollars on an attorney and potentially get the same info. :-)
Thanks all!
PS: I'm happy to add value to this community as it relates to franchising. I'm currently a multi-unit franchise owner across two brands as well as franchise broker/consultant. If there's anything I can do to assist anyone here, I'm happy to do so!
from Babson College in Boston, MA, USA
from Tufts University in Jersey City, NJ, USA
There are two entities: The clinical entity (PC or LLC, depending on the state) and the MSO (LLC). The clinical entity will be 100% owned by the clinical partner as this is the entity that will be practicing medicine and therefore cannot be owned to any percentage by a non-clinician, will collect all clinical revenue, and will employ any of the licensed/credentialed individuals that the MSO cannot legally employ. Otherwise, all other matters of business should be conducted by the MSO in order to legitimize the claim that the MSO is a management company and is not involved in the practice of medicine. The MSO is the entity that you will co-own with the clinical partner. The clinical entity will have no economic value, as the management company will be entitled to 100% of revenue collected by the clinical company.
To reiterate: You need an experienced attorney to set this up properly. This is not something to wing or cheap out on legal. Your investment will effectively be wiped if you end up determined to be on the wrong side of "Corporate Practice of Medicine" laws.