For medical professionals, effective business structuring of a new or existing practice can provide opportunities to expand the practice, acquire new assets and reduce personal liability and taxable income. A practitioner’s choice of business structure will impact any exposure to liability, the financial position of the practice and the ability to protect assets.
What types of business structures are available?
There are a range of structures available to practitioners which include sole trader, partnerships, companies, discretionary trusts and unit trusts. Given the liability which medical practitioners are potentially exposed to the most effective business structure would be a company or trust which separates the legal identity between the business and practitioners.
Sole trader or partnership of individuals
A sole trader or partnership of individuals does not separate the legal identity between business and practitioner. These types of business structures potentially expose practitioners to liability and risk. For example, in the event a patient brings a legal action against a medical practitioner for medical negligence, the practitioners’ personal assets can be jeopardised if they are required to pay damages to an applicant.
A company can be a viable choice of business structure for medical practitioners as it provides protection in terms of creating a separate legal identity between the business and practitioner. This means that a practitioner’s personal assets will largely be protected from business and personal risk. For more information see our Law Society CPD paper on Structuring Professional Practices.
A discretionary trust can be used to separate practitioners from the business. The legal relationship of a trust operates to have the trustee holding the assets of on behalf of the beneficiaries. The trustee can be a company which will further limit liability and protect medical professionals. A discretionary trust operates in a way which income of the trust is distributed to beneficiaries at the discretion of the trustee in accordance with conditions in the trust deed. However, a beneficiary of a discretionary trust does not have a vested interest in the trust property for the duration of the trust.
Like a discretionary trust, a unit trust can be used to separate practitioners from the business, this is provided that the practitioner is not a trustee. However, beneficiaries have a fixed interest in the trust which is proportional to the amount of units they hold.
Unitholders have a right to share in profits of the trust. A unitholder will also have the right to sell units in the trust, which may be subject to the terms of the trust deed and a unit holders agreement. This means succession planning can be readily available to new owners by selling existing units to them.
Our solicitors are highly experienced in assisting medical professionals with the structuring of their practice. We can help medical professionals to maximise asset protection through effective business structuring. We also assist in minimising tax implications, preparing deeds to establish unit and discretionary trusts and reviewing our client’s present arrangements and advising on alternative options.
Each business structure has different taxation and commercial implications. When choosing a business structure, practitioners should ensure that they receive appropriate legal and accounting advice in relation to the personal services income legislation.
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If you need advice on business structuring for your medical practice, email us at firstname.lastname@example.org or call us on (02) 4929 7002.