CO Code § 12-240-138 (2021)
2021 Colorado Code|Title 12 - Professions and Occupations|Article 240 - Medical Practice|§ 12-240-138. Professional Service Corporations, Limited Liability Companies, and Registered Limited Liability Partnerships for the Practice of Medicine - Definitions

  Persons licensed to practice medicine by the board may form professional service corporations for such persons' practice of medicine under the “Colorado Business Corporation Act”, articles 101 to 117 of title 7, if the corporations are organized and operated in accordance with the provisions of this section. The articles of incorporation of the corporations shall contain provisions complying with the following requirements:   The name of the corporation shall contain the words “professional company” or “professional corporation” or abbreviations thereof.    The corporation is organized solely for the purpose of permitting individuals to conduct the practice of medicine through a corporate entity, so long as all the individuals are actively licensed physicians or physician assistants in the state of Colorado.    The corporation may exercise the powers and privileges conferred upon corporations by the laws of Colorado only in furtherance of and subject to its corporate purpose.      Except as specified in subsection (1)(d)(II) of this section, all shareholders of the corporation are persons licensed by the board to practice medicine in the state of Colorado who at all times own their shares in their own right; except that one or more persons licensed by the board as a physician assistant may be a shareholder of the corporation as long as the physician shareholders maintain majority ownership of the corporation. The shareholders shall be individuals who, except for illness, accident, time spent in the armed services, on vacations, and on leaves of absence not to exceed one year, are actively engaged in the practice of medicine or as a physician assistant in the offices of the corporation. (d) (I) Except as specified in subsection (1)(d)(II) of this section, all shareholders of the corporation are persons licensed by the board to practice medicine in the state of Colorado who at all times own their shares in their own right; except that one or more persons licensed by the board as a physician assistant may be a shareholder of the corporation as long as the physician shareholders maintain majority ownership of the corporation. The shareholders shall be individuals who, except for illness, accident, time spent in the armed services, on vacations, and on leaves of absence not to exceed one year, are actively engaged in the practice of medicine or as a physician assistant in the offices of the corporation.    If a person licensed to practice medicine who was a shareholder of the corporation dies, an heir to the deceased shareholder may become a shareholder of the corporation for up to two years, regardless of whether the heir is licensed to practice medicine. Unless the deceased shareholder was the only shareholder of the corporation, the heir who becomes a shareholder shall be a nonvoting shareholder in all matters concerning the corporation. If the heir of the deceased shareholder ceases to be a shareholder, the shares shall be disposed of pursuant to subsection (1)(e) of this section.       Provisions shall be made requiring any shareholder who ceases to be or for any reason is ineligible to be a shareholder to dispose of all of his or her shares forthwith, either to the corporation or to any person having the qualifications described in subsection (1)(d) of this section.    The president shall be a shareholder and a director and, to the extent possible, all other directors and officers shall be persons having the qualifications described in subsection (1)(d) of this section. Lay directors, officers, and heirs of deceased shareholders shall not exercise any authority whatsoever over the independent medical judgment of persons licensed by the board to practice medicine in this state. Notwithstanding sections 7-108-103 to 7-108-106 relating to the terms of office and classification of directors, a professional service corporation for the practice of medicine may provide in the articles of incorporation or the bylaws that the directors may have terms of office of up to six years and that the directors may be divided into classes, with the terms of each class staggered to provide for the periodic election of less than all the directors. Nothing in this article 240 shall be construed to cause a professional service corporation to be vicariously liable to a patient or third person for the professional negligence or other tortious conduct of a physician who is a shareholder or employee of a professional service corporation.    An heir to a deceased shareholder who becomes a shareholder shall be liable only to the same extent as the deceased shareholder would have been in his or her capacity as a shareholder, had he or she lived and remained a shareholder, for all acts, errors, and omissions of the employees of the corporation.    The articles of incorporation provide and all shareholders of the corporation agree that all shareholders of the corporation are jointly and severally liable for all acts, errors, and omissions of the employees of the corporation or that all shareholders of the corporation are jointly and severally liable for all acts, errors, and omissions of the employees of the corporation, except during periods of time when each licensee who is a shareholder or any employee of the corporation has a professional liability policy insuring himself or herself and all employees who are not licensed pursuant to this article 240 who act at his or her direction, in the amount of fifty thousand dollars for each claim and an aggregate top limit of liability per year for all claims of one hundred fifty thousand dollars, or the corporation maintains in good standing professional liability insurance that meets the following minimum standards:   The insurance insures the corporation against liability imposed upon the corporation by law for damages resulting from any claim made against the corporation arising out of the performance of professional services for others by those officers and employees of the corporation who are licensees.    The policies insure the corporation against liability imposed upon it by law for damages arising out of the acts, errors, and omissions of all nonprofessional employees.    The insurance is in an amount for each claim of at least fifty thousand dollars multiplied by the number of licensees employed by the corporation. The policy may provide for an aggregate top limit of liability per year for all claims of one hundred fifty thousand dollars also multiplied by the number of licensees employed by the corporation, but no firm shall be required to carry insurance in excess of three hundred thousand dollars for each claim with an aggregate top limit of liability for all claims during the year of nine hundred thousand dollars.    The policy may provide that it does not apply to: Any dishonest, fraudulent, criminal, or malicious act or omission of the insured corporation or any stockholder or employee thereof; the conduct of any business enterprise, as distinguished from the practice of medicine, in which the insured corporation under this section is not permitted to engage but which nevertheless may be owned by the insured corporation or in which the insured corporation may be a partner or which may be controlled, operated, or managed by the insured corporation in its own or in a fiduciary capacity, including the ownership, maintenance, or use of any property in connection therewith; when not resulting from breach of professional duty, bodily injury to, or sickness, disease, or death of any person, or to injury to or destruction of any tangible property, including the loss of use thereof; and the policy may contain reasonable provisions with respect to policy periods, territory, claims, conditions, and other usual matters.          The corporation shall do nothing that, if done by a licensee employed by the corporation, would violate the standards of professional conduct as provided for in section 12-240-121. Any violation of this section by the corporation is grounds for the board to revoke or suspend the license of the person or persons responsible for the violation.    Nothing in this section diminishes or changes the obligation of each licensee employed by the corporation to conduct his or her practice in accordance with the standards of professional conduct provided for in section 12-240-121. Any licensee who, by act or omission, causes the corporation to act or fail to act in a way that violates the standards of professional conduct, including any provision of this section, is personally responsible for such act or omission and is subject to discipline for the act or omission.    Nothing in this section modifies the physician-patient privilege specified in section 13-90-107 (1)(d).    A professional service corporation may adopt a pension, cash profit sharing, deferred profit sharing, health and accident, insurance, or welfare plan for all or part of its employees including lay employees if the plan does not require or result in the sharing of specific or identifiable fees with lay employees, and if any payments made to lay employees, or into any plan in behalf of lay employees, are based upon their compensation or length of service, or both, rather than the amount of fees or income received.      Corporations shall not practice medicine. Nothing in this section shall be construed to abrogate a cause of action against a professional corporation for its independent acts of negligence.    Employment of a physician in accordance with section 25-3-103.7 shall not be considered the corporate practice of medicine.       As used in this section, unless the context otherwise requires:   “Articles of incorporation” includes operating agreements of limited liability companies and partnership agreements of registered limited liability partnerships.    “Corporation” includes a limited liability company organized under the “Colorado Limited Liability Company Act”, article 80 of title 7, and a limited liability partnership registered under section 7-60-144 or 7-64-1002; except that the name of an entity other than a corporation shall contain the word “professional” or the abbreviation “prof.” in addition to any other words required by the statute under which the entity is organized.    “Director” and “officer” of a corporation includes a member and a manager of a limited liability company and a partner in a registered limited liability partnership.    “Employees” includes employees, members, and managers of a limited liability company and employees and partners of a registered limited liability partnership.    “President” includes all managers, if any, of a limited liability company and all partners in a registered limited liability partnership.    “Share” includes a member's rights in a limited liability company and a partner's rights in a registered limited liability partnership.    “Shareholder” includes a member of a limited liability company and a partner in a registered limited liability partnership.        History. Source: L. 2019: Entire title R&RE with relocations,(HB 19-1172), ch. 136, p. 1212, § 1, effective October 1.    Editor's note:   This section is similar to former § 12-36-134 as it existed prior to 2019.   ANNOTATION   Law reviews. For article, “Operating a Personal Service Corporation”, see 17 Colo. Law. 2011 (1988). For article, “Choice of Entity for Healthcare Professionals”, see 29 Colo. Law. 81 (Sept. 2000). For article, “Health Care Litigation in Colorado: A Survey of Recent Decisions”, see 30 Colo. Law. 91 (Aug. 2001). For article, “Of (Allegedly) Bad Docs and (Definitely) Good Dogs: Update on Choice of Entity for Healthcare Professionals”, see 31 Colo. Law. 109 (Oct. 2002).   Annotator's note. The following annotations include cases decided under former provisions similar to this section.   Records of corporation not protectable private property of physician. Records of a professional corporation organized as an independent institutional entity for the continuing conduct of the medical practice of the clinic, which were not treated as being held by the doctors individually but were held in a representative capacity for the clinic, were not possessed by defendant physician as private property which the fifth amendment protects. United States v. Radetsky, 535 F.2d 556 (10th Cir.), cert. denied, 429 U.S. 820, 97 S. Ct. 68, 50 L. Ed. 2d 81 (1976).   This section permits respondeat superior claims against medical professional service corporations arising from negligence of the corporation's physician employees. Russell v. Pediatric Neurosurgery, P.C., 15 P.3d 288 (Colo. App. 2000), aff'd, 44 P.3d 1063 (Colo. 2002) (decided under law in effect prior to 2003 amendment). But see Estate of Harper ex rel. Al-Hamim v. Denver Health & Hosp. Auth., 140 P.3d 273 (Colo. App. 2006).   This section provides an exception to the corporate practice of medicine doctrine by permitting professional corporations to practice medicine and be liable for the negligence of physician employees. Subsection (1)(g) only addresses the manner by which shareholders may limit personal liability for the torts of the corporate employees. Subsection (1)(g) does not preclude the corporation from being held vicariously liable under the doctrine of respondeat superior. Pediatric Neurosurgery, P.C. v. Russell, 44 P.3d 1063 (Colo. 2002) (decided under law in effect prior to 2003 amendment). But see Estate of Harper ex rel. Al-Hamim v. Denver Health & Hosp. Auth., 140 P.3d 273 (Colo. App. 2006).   Corporate practice of medicine doctrine is statutorily altered, but not abolished, in Colorado. Daly v. Aspen Ctr. for Women's Health, Inc., 134 P.3d 450 (Colo. App. 2005).   This section does not create a statutory exception to the common law corporate practice of medicine doctrine. Therefore, health care providers organized under this section are not exposed to vicarious liability. Estate of Harper ex rel. Al-Hamim v. Denver Health & Hosp. Auth., 140 P.3d 273 (Colo. App. 2006).   The general assembly legislatively overruled the decision in Pediatric Neurosurgery, P.C. v. Russell, 44 P.3d 1063 (Colo. 2002), annotated above, by removing from this section the exception to the common law practice of medicine doctrine. Estate of Harper ex rel. Al-Hamim v. Denver Health & Hosp. Auth., 140 P.3d 273 (Colo. App. 2006).