> ## Documentation Index
> Fetch the complete documentation index at: https://mso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Draft the stock transfer restriction agreement
> The succession keystone: transfer triggers, pre-agreed price, successor mechanics, enforceability against transferees, and the state law now targeting these provisions.
The **stock transfer restriction agreement** (also called a continuity agreement or shareholder agreement) pre-wires what happens to the professional entity's equity when the clinician-owner dies, becomes disabled, loses their license, is excluded, or leaves. It is what makes the PC durable across changes in the individual owner, and it is the provision current legislation and enforcement most directly target.
**This is the document most affected by recent law.** Oregon's SB 951 restricts share-transfer arrangements as part of its MSO control provisions, and California's Attorney General has attacked friendly-PC stock-transfer and MSA-termination provisions in litigation.1 Draft against current law in each state you operate in, with counsel, and expect to revisit.
## Prerequisites
* The professional entity formed and shares issued
* The clinician-owner represented by independent counsel
* Healthcare counsel licensed in the state
* At least one identified successor candidate
## The core provisions
### 1. Transfer prohibition
The baseline: the owner may not sell, pledge, assign, or otherwise transfer the equity except as the agreement permits. This is what makes everything else operative.
Also prohibit **involuntary** transfers — by operation of law, on divorce, on bankruptcy — to the extent state law allows.
### 2. Triggering events
Define precisely. Vague triggers produce disputes at exactly the moment you cannot afford one.
| Trigger | Drafting note |
| ------------------------------------------------ | -------------------------------------------------------------------------------------------------------- |
| **Death** | Straightforward |
| **Permanent disability** | Needs a **definition** and a **determination process**, who decides, on what evidence, after what period |
| **Loss, suspension, or restriction of license** | Include restriction, not just revocation |
| **Exclusion or debarment** | OIG LEIE, SAM.gov, state Medicaid lists |
| **Conviction of a disqualifying offense** | Define the category |
| **Termination of employment with the PC** | With and without cause, treated differently |
| **Material breach** | Of this agreement or the employment agreement, with cure rights |
| **Bankruptcy or attempted involuntary transfer** | |
| **Retirement or voluntary resignation** | Often with notice requirements |
### 3. The transfer mechanism
On a trigger, the equity transfers to a successor. Two approaches:
| Approach | Mechanics | Tradeoff |
| --------------------- | ------------------------------------------------------------ | -------------------------------------------------------- |
| **Named successor** | A specific licensee identified in advance | Cleaner; requires maintaining a real, willing person |
| **Designation right** | A designated party may name an eligible licensee at the time | More flexible; **most likely to be read as MSO control** |
If the MSO holds the designation right, you have created a mechanism by which a lay entity selects who owns the professional entity. That is precisely the control indicator recent statutes address. Consider vesting the right in the PC's board, in a clinical committee, or in a named licensee, and take the drafting to counsel in each state.
### 4. Price
Typically **nominal**, the original purchase price, or a stated small amount. The rationale is that the clinician did not capitalize the enterprise and the PC's residual value is near zero by design.
This is defensible when it reflects reality, and indefensible when the PC has genuine accumulated value the owner is being stripped of. If your PC has real retained earnings, a nominal-price transfer is harder to justify, which is another reason a well-run PC runs near break-even. See [Where the profit lives](/concepts/finance/where-the-profit-lives).
### 5. Closing mechanics
* Time period from trigger to closing
* Documents each party must deliver
* **A power of attorney or an escrowed transfer instrument** so the transfer can complete if the owner or their estate does not cooperate
An irrevocable power of attorney allowing the MSO to execute a transfer of the clinician's shares is the single most aggressive provision in this document, and it is close to the "captive documents" described in *Allstate v. Northfield*.2 Some structures need a mechanism to complete a transfer on death or incapacity; the question is who holds it and how constrained it is. Take this specific provision to counsel.
### 6. Enforceability against transferees
* **A restrictive legend on the stock certificate** (PC) or equivalent provision in the operating agreement (PLLC)
* Notation in the **stock ledger**
* Confirmation that the mechanism actually works under the state's corporate or LLC act
Without the legend, a transferee can argue they took the shares free of the restriction.
### 7. Spousal consent
In community property states, a spouse may have an interest in the shares. A spousal consent executed at the same time addresses it.
### 8. Successor obligations
The successor takes the shares subject to the same agreement, and must sign a joinder. Otherwise the restriction dies with the first transfer.
## Steps
Particularly in Oregon and California, and anywhere with new legislation. Check the [legislation tracker](/reference/legal/cpom-legislation-tracker).
Avoid vesting unilateral designation in the MSO where you can.
Non-negotiable on this document specifically.
Add the restrictive legend to the certificate and note it in the stock ledger.
See [Plan for succession](/guides/formation/plan-for-succession).
## Verify it worked
* [ ] Executed for every professional entity
* [ ] Triggers defined precisely, disability determination specified
* [ ] Successor mechanism specified and constrained
* [ ] Price stated with a rationale
* [ ] Restrictive legend on certificates; stock ledger noted
* [ ] Spousal consent where applicable
* [ ] Successor joinder required
* [ ] Clinician's independent counsel reviewed
* [ ] Reviewed against current state law within the last 12 months
## Common failure modes
| Failure | Consequence |
| --------------------------------------------------- | ---------------------------------------------------------- |
| No agreement | The estate or a departing clinician owns your PC |
| Vague disability definition | Dispute when it matters |
| MSO holds unilateral designation and removal rights | The *Northfield* pattern; a control finding |
| No restrictive legend | Unenforceable against a transferee |
| No successor joinder | The restriction ends after one transfer |
| Nominal price where the PC has real value | Hard to justify; may be unenforceable |
| Never reviewed | Oregon's and California's changes may already apply to you |
## Sources
1. Or. S.B. 951 (2025), [Enrolled bill](https://olis.oregonlegislature.gov/liz/2025r1/Downloads/MeasureDocument/SB951); DLA Piper, [Corporate practice of medicine enforcement: New pressure points](https://www.dlapiper.com/en/insights/publications/2026/07/corporate-practice-of-medicine-enforcement) (July 2026).
2. *Allstate Insurance Co. v. Northfield Medical Center, P.C.*, 228 N.J. 596, 159 A.3d 412 (2017). [Opinion](https://www.njcourts.gov/system/files/court-opinions/2017/a_27_15.pdf).
## Related topics
- [Plan for friendly-owner succession](/guides/formation/plan-for-succession.md)
- [Draft the management services agreement (MSA)](/guides/agreements/draft-a-management-services-agreement.md)
- [The friendly PC, explained](/concepts/model/the-friendly-pc.md)
- [Enforcement, and what happens when structures fail](/concepts/model/enforcement-and-risk.md)
- [CPOM case law](/reference/legal/cpom-case-law.md)
- [The complete agreement stack (checklist)](/reference/legal/agreement-stack-checklist.md)