Pulley vs. Carta and the Non-Provider Investor Problem

Many states restrict ownership of a clinical practice offering medical services to licensed providers, which prevents a non-provider investor from directly owning the entity that holds the clinic's medical license and treats patients. This is not unique to any one clinic. It reflects how the industry structures itself almost everywhere these restrictions exist.

The management company structure works around this by putting the investor's capital and most of the business's economics into a separate entity that owns the brand, equipment, staff, and marketing, while contracting with the licensed clinical entity through a management services agreement.

The agreement between the two entities should clearly define what services the management company provides, what fee structure compensates it, and how much control it has over clinical versus business decisions, since regulators in this space scrutinize agreements that give a non-provider effective control over clinical judgment.

A vague or overly broad management agreement is a bigger risk to the structure's legitimacy than almost anything happening in either entity's cap table, and it deserves at least as much attention as the equity documents themselves.

Pulley can represent either entity's cap table, the clinical practice or the management company, and a 409A valuation is generally needed if either issues options; corporate practice of medicine rules vary by state, so check with a healthcare attorney. It does not model the relationship between the two entities, which needs to be understood and documented through the management services agreement itself.

For a practice with one location and a simple two-entity structure, running each entity through Pulley separately is often sufficient.

Carta's multi-entity reporting becomes more valuable once a medspa or specialty clinic group operates multiple locations, each potentially with its own clinical entity under one management company, and needs a consolidated view across all of them for investors, lenders, or an eventual sale.

This matters most for a group actively acquiring or opening additional locations, where keeping every new clinical entity's ownership properly separated from the management company at scale becomes harder to do reliably by hand.

A non-provider investor should understand clearly that their equity sits in the management company, not the clinical practice, and that the clinical entity's licensed owner retains control over medical decisions regardless of how the economics are split.

Investors unfamiliar with healthcare's ownership restrictions sometimes expect direct clinical ownership the way they would in an unregulated business, and clearing up that expectation before money changes hands avoids a difficult conversation once they discover the actual structure after investing.

Walk a non-provider investor through these points:

• Their equity sits in the management company, not in the clinical practice.
• The clinical entity's licensed owner keeps control over medical decisions regardless of how the economics are split.
• The management services agreement should define the services provided, the fee structure, and how much control the manager has over clinical versus business decisions.
• The structure needs a named successor or documented transfer process if the licensed owner retires, becomes disabled, or wants out.
• A buyer will review both entities' cap tables and the management agreement together, so each needs to be clean.

The clinical entity depends on having a licensed provider willing to hold it, which means the structure needs a plan for what happens if that person retires, becomes disabled, or wants out. Without a named successor or a documented process for transferring the clinical entity to another licensed provider, the management company's economic interest can be stranded even though its own equity is perfectly clear.

Address this in the formation documents, not after the current licensed owner has already announced they are leaving. A structure that depends entirely on one person's continued willingness to hold a license is fragile in a way that is easy to overlook while that person is still actively engaged.

A buyer or investor evaluating a medspa group will look at both entities' cap tables and the management services agreement together, since none of the three tells the full story alone. A clean clinical entity cap table paired with a vague management agreement raises exactly the questions a well-documented structure is meant to avoid.

Treat the two cap tables and the agreement between them as one package during any diligence process, reviewed together rather than handed over piecemeal as different advisors ask for different pieces.