Step 1: Pick your state and entity types

Your launch state determines your professional entity form, your CPOM exposure, whether percentage-based management fees are safe, and how long formation takes. Pick it deliberately: it is the most consequential decision in this tutorial, and the hardest to reverse.

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What Meridian did

Alex and Dr. Shah chose Colorado for the launch: Dr. Shah is licensed there, the market has demand, and Colorado permits both PC and LLC forms for medical practices while enforcing CPOM at a moderate rather than strict level. They organized the MSO as a Delaware LLC because they expect institutional investors, and foreign-qualified it in Colorado. Your answer will differ. Here is how to get to it.

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Answer these four questions

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1. Where is your clinician licensed, and where is your demand?

These have to overlap. A professional entity must be owned by someone licensed in that state for that profession. If your friendly clinician is licensed in three states, those are your three cheapest launch options. Do not pick a state for regulatory convenience alone. You cannot bill a payer in State A for care delivered to a patient in State B; the patient’s location at the time of service generally governs, and telehealth does not change licensure requirements. Launch where your patients are.

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2. What entity forms does that state allow for your profession?

There are three professional entity forms in common use, and the choice is usually dictated rather than optional: Look up your state’s page, for example Texas, California, New York, for the permitted forms, the name requirements, and any board pre-approval step. Three things to check specifically:

• Name rules. Most states require a designator (“P.C.”, “Professional Corporation”, “PLLC”, “P.A.”) and many restrict the name to the surnames of licensed owners or require board approval of a trade name. This constrains your brand: Meridian Dermatology, P.C. may need to be Priya Shah, M.D., P.C. doing business as Meridian Dermatology.
• Board pre-approval. Some states require a certificate from the licensing board before the secretary of state will file. New York requires Education Department approval for professional entity filings. Texas physicians file with the Secretary of State but must satisfy Medical Board requirements on ownership. These add weeks.
• Officer and director licensure. Several states require that directors and officers, not just shareholders, be licensees. That affects who can sit on your PC’s board, and it means the MSO’s executives cannot.

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3. How strict is CPOM there, and what does that do to your fee?

CPOM strictness affects the content of your MSA more than whether you can operate at all. The practical question for Step 1 is: can the management fee be a percentage of collections? In states with active fee-splitting doctrines — New York and Florida are the canonical examples — a percentage-of-revenue management fee is materially riskier than a flat or cost-plus fee, because it looks like sharing professional fees with a non-licensee. In permissive states it is routine. This matters now, not later, because it shapes your financial model. See Fee-splitting rules, explained and Evolve the fee structure.

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4. Are the rules about to change?

2025 and 2026 were the most active legislative years in the doctrine’s modern history. Before committing, check the CPOM & MSO legislation tracker for your state. Recent examples:

• Oregon enacted SB 951 (2025), which restricts MSO ownership and control of professional medical entities and limits share-transfer arrangements. It applies to arrangements formed on or after June 9, 2025 beginning January 1, 2026, with pre-existing arrangements given until January 1, 2029.¹
• California enacted SB 351, effective January 1, 2026, barring private equity groups and hedge funds from controlling specified clinical and administrative functions in physician and dental practices.²
• Vermont enacted Act 133 (signed June 15, 2026), codifying its prohibition on corporate interference with clinical decision-making and adding PE/hedge-fund ownership reporting to the Green Mountain Care Board beginning March 1, 2027.³

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Where to organize the MSO

The MSO is a normal business entity. It has no professional-entity constraints, so you have real freedom: Whatever you choose, the MSO must foreign-qualify in every state where it has employees, offices, or does business, which is every state where you operate a PC. See Register entities in additional states.

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Your artifact from this step

Write down and keep:

• Launch state, and the clinician license that supports it
• Professional entity form (PC / PLLC / PA) and the statute that requires it
• Name that satisfies the state’s professional-entity naming rules, plus your DBA if the brand differs
• Whether a licensing board pre-approval is required, and what it takes
• Whether percentage-of-collections fees are viable in that state
• MSO domicile, and the list of states it will need to foreign-qualify in

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Checklist

• Confirmed the clinician holds an active, unrestricted license in the launch state
• Read the state’s page in CPOM by state
• Checked the legislation tracker for pending or recent changes
• Confirmed the permitted entity form and name requirements
• Identified any board pre-approval step and its lead time
• Chosen MSO domicile
• Engaged healthcare counsel licensed in the launch state

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Next

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Sources

1. Or. S.B. 951 (2025 Reg. Sess.), amending ORS 58.375, 58.376 and adding ORS 676.555. Enrolled bill (Oregon Legislature). Effective-date analysis: Holland & Knight, An Update on the Implementation and Implications of Oregon’s New CPOM Laws (May 2026).
2. Cal. S.B. 351 (2025), signed October 6, 2025, effective January 1, 2026. Summary: Epstein Becker Green, California Governor Signs SB 351.
3. Vt. Act 133 (2026) (H.583), signed June 15, 2026. Act text (Vermont Legislature).