The standard PC-MSO structure rests on a licensed shareholder who owns the clinical entity without necessarily working in it day to day. In most jurisdictions that arrangement is built on silence — nothing forbids it, so it is done. The District of Columbia is one of the few places where the code addresses it directly.
DC Code § 29-508(c): nothing in the chapter shall require a shareholder or incorporator of a professional corporation to have a present or future employment relationship with the corporation or actively to participate in any capacity in the production of income of, or performance of professional service by, such corporation.
What this does
It removes an argument. A regulator or a counterparty cannot say that a licensed shareholder who does not treat patients at the practice is, for that reason, a sham owner. The statute expressly contemplates that person.
For a multi-state operator, this is one of the cleanest statutory footings available for the licensed-owner leg of the structure.
What this does not do
It does not relax the licensure requirement. § 29-508(b) still requires the shareholder to be licensed to render the professional service the corporation is organized for. § 29-508(c) relaxes participation, not qualification.
And it does not touch the separate question of control. A licensed passive shareholder who cannot in practice terminate the management company, change protocols or control the accounts is nominal in substance whatever the statute permits in form — the analysis a court applied in the New Jersey sham PC litigation.
How to use it
- Confirm the shareholder holds a current DC licence in the right profession.
- Document the shareholder’s actual authority: the ability to hire and fire the medical director, approve protocols, and control the clinical entity’s bank account.
- Keep the management fee at fair market value and independent of clinical profit.
- Do not rely on § 29-508(c) in any other jurisdiction. It is a District provision, and the reasoning does not travel.
Why the last point matters
Operators find a favourable provision in one state and generalise it. The District permitting a passive licensed shareholder says nothing about Maryland across the line, or Virginia across the other. Each entity is formed under its own state’s law and answers to it.
Related reading
Frequently asked questions
Must a DC professional corporation shareholder work at the practice?
No. DC Code § 29-508(c) states nothing requires an employment relationship or active participation in producing income.
Does that allow a non-licensee to hold shares?
No. § 29-508(b) still requires the shareholder to be licensed in the relevant profession.
Does it settle whether an MSO structure is defensible?
No. Control is a separate question from statutory permission, and nominal ownership remains a risk.
Does this reasoning apply in Maryland or Virginia?
No. It is a District of Columbia provision and does not travel.
General information about District of Columbia entity requirements, not legal advice. Confirm your obligations with counsel licensed in the District of Columbia.