A stock transfer restriction agreement is lawful at its core. The professional corporation statutes let you fix by agreement who receives a physician’s shares, on what events, and at what price. What those statutes void is any arrangement that hands the vote to someone outside the profession. And since 2025 one state, Oregon, lists the only events a management company may use to trigger a transfer. Draft to that list, wherever you are.
What the statutes require everywhere
Every state we read says the same three things.
Only licensed people hold the shares. California: shares “may be transferred only to a licensed person,” and a transfer in violation “shall be void” (Corp. Code § 13407). New York adds a practice requirement: shares go only to individuals authorized to practice who “are or have been engaged in the practice of such profession in such corporation” or will be within thirty days (Bus. Corp. Law § 1507(a)). A figurehead who never practices in the entity fails that test on its face. Illinois is blunter still: “No person who is not so licensed shall have any part in the ownership, management, or control of such corporation” (805 ILCS 15/13(a)).
Two details catch people. California’s 49 percent minority under § 13401.5 is for other licensed professionals, such as nurses and physician assistants, and is no window for a lay owner. Texas physicians use a professional association or a professional limited liability company, because the professional corporation form excludes “the practice of medicine by physicians” (Bus. Orgs. Code § 301.003(3)). Arizona is the outlier: other persons may hold voting shares if together they “do not hold more than forty-nine per cent” (A.R.S. § 10-2220(A)(4)).
No vote goes to an outsider. California voids any “voting trust, proxy, or any other arrangement vesting another person” with a shareholder’s voting power (Corp. Code § 13406(a)). New York, New Jersey, Illinois, Nevada, Florida and Oregon have the same rule in their own words. A share transfer agreement can never carry a proxy to the management company.
A clock starts when the owner dies or loses the license.
| State | After disqualification | After death | Source |
|---|---|---|---|
| California | 90 days | Six months | Corp. Code § 13407 |
| New York | Six months | Six months | Bus. Corp. Law § 1510 |
| New Jersey | 90 days | 375 days | N.J.S.A. 14A:17-13(c) |
| Washington | Twelve months | RCW 18.100.116 | |
| Arizona | Five months | Ten months | A.R.S. § 10-2227 |
| Texas | “Promptly” | Bus. Orgs. Code § 301.008(b) | |
| Nevada | “Within a reasonable period” | NRS 89.080(1) | |
| Florida | “Forthwith” | Fla. Stat. § 621.10 |
In California, income earned while a shareholder is disqualified “shall not in any manner accrue to the benefit of such shareholder” (Bus. & Prof. Code § 2409). A license-loss trigger has to operate fast, which is the practical reason to keep a bench of licensed physicians in each state.
The lawful core: price and mechanics by agreement
The same statutes invite the agreement. New York lets “an agreement among the corporation and all shareholders” set “a shorter period of purchase or redemption, or an alternate method of determining the price” (§ 1510). Texas says the price and terms “may be provided by the governing documents of the entity or an applicable agreement” (§ 301.008(d)). New Jersey says nothing prevents the parties “from making any other arrangement” by agreement to transfer a deceased or disqualified shareholder’s shares to qualified persons. Arizona makes such a provision “specifically enforceable” (§ 10-2223(E)).
Two cautions. The agreement these statutes describe is among the corporation and its shareholders, and none names a management company as a party. And we found no primary source that approves or condemns transfer for nominal consideration as such. The price term is permitted, and it will be read with the rest of the money flow.
Oregon wrote the trigger list
Oregon is the only state that regulates the agreement itself. It never uses the phrase “stock transfer restriction agreement.” It says an MSO may not “control or enter into an agreement to control or restrict the sale or transfer of a professional medical entity’s shares, interest or assets,” except as the next paragraph allows (ORS 676.555(2)(a)(C)). The conditions that paragraph lists:
- Suspension or revocation of the owner’s professional license.
- Disqualification from holding the shares.
- Exclusion, debarment or suspension from a federal health care program, or an investigation that could lead to it.
- Indictment for a felony or another crime involving fraud or moral turpitude. Indictment, before any conviction.
- Breach of the management services contract by the entity or, since HB 3410, by the shareholder.
- Death, disability or permanent incapacity.
The statute says the conditions “include” these, so it does not call the list closed. Notice what is absent. Expiry or termination of the management agreement without breach is not there. Removal at the management company’s discretion is not there. A provision that goes further “is void and unenforceable,” and the physician or the entity may sue the management company for damages, an injunction and punitive damages (ORS 676.555(5)).
The rule applies from January 1, 2026 to entities organized on or after June 9, 2025, and from January 1, 2029 to older ones. Telemedicine-only entities with no Oregon clinic are exempt from the majority-ownership and proxy bars. They are still subject to the transfer rule. A companion change bars any contract that provides for removing a physician director or officer except by vote of the physician shareholders or for listed causes (ORS 58.500(4)). Our summary of the statute is in Oregon SB 951.
California’s SB 351 and Vermont’s 2026 act say nothing about share transfers. In California the older law above still does the work.
What courts treated as proof of control
New Jersey. In Northfield, the owner physician “would be asked to sign an undated resignation letter” and an undated affidavit of non-issued or lost certificate. When she and the manager disagreed, he used those papers “to make it appear that she voluntarily transferred her ‘ownership'” to the next doctor, “who was selected by” him. The court called the structure “little more than a sham” and said the physician held “bare legal title.” We cover the case in New Jersey already punished the sham PC.
New York. Mallela lets a payer “look beyond the face of licensing documents.” Carothers added that no finding of fraud is needed and that control is tested for the life of the entity: good faith at incorporation “does not defeat a claim” if “at some point after the initial incorporation, the nominal physician owner turned over control of the business to nonphysicians.”
Texas. In Flynn Brothers the physician “could not sell his interest” to the detriment of the manager. When he tried to sell to a doctor of his choosing, the manager produced its own buyer. The court refused to enforce the arrangement. The court condemned the whole contract without isolating that clause. We found no reported case that squarely enforces or strikes a stock transfer restriction agreement in a PC and MSO structure.
Eight terms of a defensible agreement
- Objective triggers only, drawn from Oregon’s list.
- No removal of the owner at the management company’s election.
- No undated resignation and no pre-signed transfer papers held by anyone.
- No proxy, voting trust or voting agreement in favor of the management side.
- A successor who is eligible under the state’s statute, chosen by a process the physician side controls, and installed inside the state’s clock.
- A price term that fits the real economics.
- No penalties stacked across the lease, the management agreement and this document that make refusal impossible.
- Nothing hidden. New York requires transfer restrictions to be noted on the share certificate.
What this means for you
Read the trigger list first. If it lets the management company replace the physician owner because the management agreement ended, or for no stated reason, that is the clause a court or an Oregon plaintiff will quote. Search your files for undated resignations and signed blank transfer forms, and end the practice of keeping them. Confirm your successor is licensed in the state and, in New York, will actually practice in the entity. Read this document next to the management agreement, because courts read them together. Forming in Nevada? See how hard a friendly PC is to unwind there. New to the two-company model? Start with friendly PC and MSO structure.
Related reading
Frequently asked questions
Is a stock transfer restriction agreement legal?
Its core is. Professional corporation statutes in New York, Texas, New Jersey, Arizona and Washington expressly let the price and mechanics of a share transfer be set by agreement, and all limit transfers to licensed persons. What they void is any proxy or voting arrangement in favor of an outsider. Oregon additionally limits the events a management company may use to trigger a transfer.
Can an MSO choose the successor physician?
No statute we read says who chooses, outside Oregon’s limits on MSO control of transfers. Courts look at the whole arrangement. In Northfield, a successor selected by the manager, combined with an undated resignation letter and heavy contract penalties, was treated as proof that the physician held only bare legal title. Keep the choice with the physician side.
What happens to a medical PC when the physician owner dies?
A statutory clock starts. California allows six months to transfer the shares to a licensed person, New York six months, New Jersey 375 days, Washington twelve months and Arizona ten months. In Oregon a sole-owner corporation must stop practicing medicine on the date of death unless it has retained another licensed physician. Name the successor in advance.
Does Oregon SB 951 ban stock transfer restriction agreements?
No. ORS 676.555 bars an MSO from controlling or restricting transfers of a professional entity’s shares except on listed conditions: license suspension or revocation, disqualification, federal program exclusion, indictment for a felony or fraud, breach of the management contract, and death or disability. Provisions beyond that are void, and the physician may sue.
This is general information, not legal advice. Rules vary by state and change. Confirm your own facts with counsel.