If you are considering the addition of a co-shareholder to your medical or other professional practice, it may not be as simple as you think. While you may not mind sharing the profits with the new partner, allowing him to have input on business decisions affecting your practice may be quite another matter. As a result of a New Jersey statute long overdue for an amendment, you may be forced to hand over the controls to your new partner.
The law governing professional service corporations (N.J.S. 14A:17-6) specifies that where an entity has two shareholders, both “shall be” the directors. The terms of the statute appear to require that not only must the shareholder be a second director, but that he becomes a “minority partner” as well, which means that he will have half of the control regardless of his percentage of shareholdings. To illustrate, let’s assume you add John Smith as a 10% shareholder of your practice. He will be entitled to a 50% say in your practice’s business decisions, regardless of the fact that he only gets 10% of profits. [Read more…] about Medical Practice adding a Co-shareholder? Caution!