Here's the good news: Alabama doesn't enforce a Corporate Practice of Medicine doctrine, so corporations can own healthcare entities and employ physicians. The catch? You still need to navigate critical requirements around physician clinical autonomy, professional licensing regulations, and a maze of filing deadlines across multiple state agencies. Miss the 30-day window for filing with the Alabama Board of Medical Examiners after formation, and you're looking at potential administrative proceedings or entity dissolution orders.
Alabama recognizes three viable professional entity types under Title 10A: Professional Corporations (PCs), Professional Limited Liability Companies (PLLCs), and Limited Liability Partnerships (LLPs). Professional Associations (PAs) are legacy structures applicable only to entities formed before January 1, 1984.
Professional Corporations operate under the Alabama Professional Corporation Act, which provides the most established framework for healthcare practice structures. Section 10A-4-3.01 restricts share ownership exclusively to "qualified persons," defined under Section 10A-4-1.03 as individuals duly licensed to render the same specific professional services for which the corporation was formed. This single-discipline requirement means physicians cannot share PC ownership with dentists, pharmacists, or other healthcare professionals.
If you form a medical PC, you must file with the Alabama Board of Medical Examiners within 30 days of formation per Rule 540-X-9-.01, submitting certified copies of formation documents and ownership information. Directors and officers must be shareholders, and the corporation must maintain professional liability insurance.
PLLCs operate under Chapter 5A, Article 8 of Title 10A. The most significant limitation appears in Section 10A-5A-8.01: members retain full personal liability for "any negligent or wrongful act, misconduct, or omission in which that member personally participates to a material degree." This substantially reduces the liability protection you'd typically expect from an LLC structure and makes PLLCs less protective than PCs for medical malpractice exposure.
The Alabama Board of Medical Examiners' 2014 LLC Declaratory Ruling confirmed that LLCs can employ physicians and render professional medical services, but only licensed physicians can own membership interests in PLLCs providing medical services. Members must maintain Alabama medical licenses in active status, and the loss of licensure triggers mandatory ownership transfer provisions.
LLPs follow Chapter 8A, Article 10 requirements and require filing a Statement of Qualification with the Secretary of State. Section 10A-8A-10.02 establishes that partners retain full personal liability for their own professional negligence, similar to PLLC liability limitations.
Unlike restrictive states like California or Texas, Alabama takes a permissive approach to corporate practice of medicine. The Alabama Medical Licensure Commission's 1992 Declaratory Ruling No. 2-1195 explicitly held that employment of licensed physicians by general business corporations does not constitute unlicensed practice of medicine or prohibited fee splitting. The Commission's 2014 LLC Declaratory Ruling reaffirmed that LLCs and other corporate entities can employ physicians and render professional medical services.
The critical regulatory limitation focuses on clinical autonomy rather than ownership structure. Corporations can employ physicians and own medical practices if physicians retain "full independent authority over medical decisions and patient care." Corporate management cannot dictate medical judgment or impose financial incentives that improperly influence clinical decisions. Alabama Code Section 34-24-360(10) prohibits fee splitting for patient referrals, but the 1992 Declaratory Ruling confirmed this does not prohibit bona fide employment relationships with reasonable compensation structures.
The Alabama Supreme Court's decision in DeVos v. Cunningham Group, LLC, 289 So. 3d 874 (Ala. 2019) analyzed physician employment by a corporate LLC without questioning the validity of the corporate practice structure, demonstrating judicial acceptance of these arrangements.
Alabama's entity formation process involves multiple agencies, overlapping deadlines, and fees that vary by entity type. Here's what you need to know.
Alabama significantly simplified annual compliance obligations in recent years. Professional Corporations file annual reports as addenda to their Business Privilege Tax Return through the Alabama Department of Revenue per Section 10A-2-16.22.
The Business Privilege Tax replaced Alabama's former franchise tax and applies to all corporations and limited liability entities. Track Business Privilege Tax returns for April 15 (C-corps) and March 15 (S-corps/LLCs)—and that's just one of dozens of deadlines you're juggling across entity types. Business Privilege Tax returns are due April 15 for C-corporations and March 15 for S-corporations and LLCs (calendar year entities), with $50-$15,000 tax plus $10 annual report fee for PCs. Professional LLCs are not required to file annual reports with the Alabama Secretary of State.
Entities with calculated Business Privilege Tax of $100 or less are exempt from filing and payment for taxable years beginning after December 31, 2023. Many small medical practices may have zero annual state compliance requirements. This exemption applies automatically based on tax calculation; no separate exemption application is required.
You must also maintain continuous compliance with professional licensing boards. The Alabama Board of Medical Examiners requires medical PCs and PLLCs to report ownership changes, amendments to formation documents, and changes in licensed professionals within 30 days per Alabama Administrative Code Rule 540-X-9-.01. Dental practices must comply with similar requirements under the Alabama Board of Dental Examiners per Alabama Administrative Code Rule 270-X-4. Failure to maintain current filings with licensing boards can result in administrative proceedings or entity dissolution orders.
Individual professional licensing requirements directly impact entity compliance and ownership eligibility. The Alabama Board of Medical Examiners and Medical Licensure Commission governs physician licensing under Alabama Code Section 34-24-360 with authority to establish licensing standards, conduct disciplinary proceedings, and mandate continuing medical education requirements.
Alabama physicians must complete 25 AMA PRA Category 1 Credits annually, measured on a January 1 through December 31 calendar year cycle. Accepted credits include AMA PRA Category 1 Credits, AOA Category 1-A credits, and equivalent credits from accredited entities. Physicians must maintain CME documentation for a minimum of three years and produce documentation upon Board request. New licensees in their first calendar year, physicians on active military deployment, and physicians actively enrolled in residency programs receive CME exemptions.
A new mandatory requirement took effect for 2025: all actively licensed physicians must complete a 2-hour course titled "Navigating Professional Boundaries in Medicine" by December 31, 2025. This is a one-time completion requirement for all actively licensed physicians.
License status directly affects entity ownership eligibility under Alabama's professional entity statutes. Section 10A-4-3.01 limits PC share ownership to qualified persons as defined in Section 10A-4-1.03. A physician with an active Alabama license qualifies as a potential shareholder. Out-of-state licensed physicians not actively practicing in Alabama may also qualify based on the Board's 1994 opinion, but physicians with suspended or revoked Alabama licenses categorically cannot hold ownership interests.
License lapses create immediate ownership complications. If a PC or PLLC shareholder's license expires, is suspended, or is revoked, the entity's formation documents typically require automatic ownership transfer mechanisms. Ownership changes resulting from license lapses must be reported to the Board within 30 days per Rule 540-X-9-.01. Failure to divest unlicensed shareholders can result in administrative proceedings, professional discipline for remaining licensed shareholders, and potential involuntary dissolution under Section 10A-4-5.01.
Multi-profession entity considerations face strict limitations in Alabama. Under Alabama Code § 10A-4-1.03, the statutory definition of "qualified person" requires individuals to be "duly licensed or otherwise legally authorized...to render the same specific professional services" for which the entity was formed. This requirement categorically prohibits healthcare professionals from different disciplines. For example, physicians and dentists cannot co-own a single professional entity.
Healthcare professionals from different disciplines seeking integrated practice models must form separate professional entities for each discipline and may utilize a Management Services Organization (MSO) structure, where a non-professional management company provides administrative services to multiple separate professional entities under distinct ownership.
License renewal cycles vary by profession, with physicians renewing on a calendar year basis requiring 25 AMA PRA Category 1 Credits annually and other healthcare professionals following profession-specific schedules. You need to track renewal deadlines for all licensed owners to prevent inadvertent ownership by unlicensed individuals. Many practices implement compliance calendars that track both entity-level deadlines (Business Privilege Tax, licensing board filings) and individual professional deadlines (license renewals, CME completion, specialty certifications).
Can a non-physician investor or private equity firm own an Alabama medical practice?
Yes, but with critical limitations on clinical control. Alabama's permissive corporate practice doctrine allows corporations to employ physicians and own medical practices based on the Medical Licensure Commission's 1992 Declaratory Ruling and 2014 LLC Declaratory Ruling. Non-physician investors can hold ownership interests in general business corporations or LLCs that employ physicians. However, physicians must retain "full independent authority over medical decisions and patient care." Corporate management cannot dictate clinical judgment, establish quotas that compromise care quality, or create financial incentives that improperly influence medical decisions. Additionally, Section 34-24-360(10) absolutely prohibits fee splitting for patient referrals.
What happens if a physician-owner's Alabama medical license lapses or is suspended?
License suspension or revocation immediately disqualifies a physician from PC or PLLC ownership under Section 10A-4-3.01, which restricts ownership to "qualified persons" defined as currently licensed professionals. The entity must effectuate ownership transfer within the timeframe specified in its formation documents (typically 30-90 days). Rule 540-X-9-.01 requires medical PCs to report ownership changes to the Alabama Board of Medical Examiners within 30 days.
Formation documents should include predetermined buyout mechanisms, valuation formulas, and transfer procedures to handle involuntary ownership changes. Failure to divest unlicensed shareholders exposes the entity to administrative proceedings, potential involuntary dissolution under Section 10A-4-5.01, and professional discipline for remaining licensed shareholders. The Board may refuse to approve ownership structures that include unlicensed individuals or may order dissolution of non-compliant entities.
Does Alabama require annual reports for healthcare professional entities?
Annual report requirements have been significantly simplified under Alabama law. Professional Corporations no longer file annual reports with the Secretary of State; instead, they file an annual report addendum with their Business Privilege Tax Return to the Alabama Department of Revenue. The combined filing includes a $10.00 annual report fee and Business Privilege Tax of $50-$15,000, due April 15 for calendar year C-corporations or March 15 for S-corporations. Professional Limited Liability Companies are not required to file annual reports with either the Secretary of State or the Department of Revenue.
However, both entity types must file Business Privilege Tax Returns, and entities with calculated Business Privilege Tax of $100 or less are completely exempt from filing and payment for taxable years beginning after December 31, 2023. Both PCs and PLLCs must maintain current filings with professional licensing boards and submit certified copies of formation documents to the appropriate board within 30 days of initial formation per Alabama Administrative Code Rule 540-X-9-.01.
Should a medical practice choose a Professional Corporation or Professional LLC structure?
The choice primarily involves liability protection, tax treatment, and governance preferences. Professional Corporations under Title 10A, Chapter 4 provide more robust liability protection for medical malpractice since shareholder liability is limited to their investment except for their own negligent acts. Professional LLCs face a critical limitation under Section 10A-5A-8.01: members retain full personal liability for "any negligent or wrongful act, misconduct, or omission in which that member personally participates to a material degree." This substantially reduces the liability protection you'd typically expect from an LLC structure.
From a tax perspective, PCs can elect S-corporation or C-corporation taxation, while PLLCs default to partnership taxation but can elect corporate treatment. Annual compliance costs differ: PCs pay $50-$15,000 Business Privilege Tax plus $10.00 annual report addendum fee, while PLLCs pay $50-$15,000 Business Privilege Tax with no annual report requirement. Both qualify for the $100 exemption threshold, which exempts entities from filing and payment if their calculated Business Privilege Tax is $100 or less. Governance requirements favor PLLCs for flexibility, as operating agreements offer more customization than corporate bylaws. Most medical practices prioritize liability protection and choose the PC structure for stronger malpractice protection.
Can physicians from different medical specialties form a single professional entity together in Alabama?
Yes, physicians from different specialties (cardiologists, orthopedists, family practitioners) can form a single Professional Corporation or Professional LLC because they all practice the "same specific professional service" of medicine under Alabama Code §§10A-4-1.03 and 10A-4-3.01. However, physicians cannot form a single professional entity with licensed healthcare professionals from different professions, as Alabama's statutory framework requires that shareholders be licensed to render "the same specific professional services" as the entity.
This prohibition on multi-profession ownership under §10A-4-1.03 prevents healthcare professionals from different disciplines from co-owning a single entity. Healthcare professionals from different disciplines seeking integrated practice models must form separate professional entities for each profession. Many integrated healthcare organizations utilize Management Services Organization (MSO) structures where a separate general business entity provides administrative services, facilities management, billing, and support services to multiple professional entities that maintain separate ownership structures. This arrangement allows operational integration while maintaining separate professional entity compliance for each licensed discipline.
Managing compliance across multiple Alabama healthcare entities creates constant uncertainty about filing deadlines, registered agent requirements, and licensing board notifications. One Discern customer managing 200+ healthcare entities reduced their annual compliance workload from weeks of spreadsheet management to 5-10 minutes of automated oversight.
Discern automates the entire Alabama healthcare entity lifecycle: formation and registration processing with automated submission to the Secretary of State and professional licensing boards; compliance calendar management with automated deadline tracking for Business Privilege Tax returns, registered agent confirmations, and licensing board requirements; and certificate generation in minutes with automatic status verification. Replace hundreds of separate state invoices with consolidated entity payment management for ongoing compliance.
Book a demo with Discern today and reduce administrative burden while maintaining perfect compliance across your Alabama entity portfolio.
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