PRACTICE BUSINESS STRUCTURES, RISE OF SUPER CLINICS, PRACTICE GROWTH
In Australia there is a fairly dramatic restructuring of the medical service industry taking place. There has been a dramatic shift away from GPs in sole practice (over 50% drop) in favour of larger practices. By contrast there is a significant increase in the proportion of GPs working in practices with five or more practitioners.
There are a number of business structures that facilitate the expansion of medical practices and when considering the purchase of a business as well as restructuring an existing business.
1. ASSOCIATESHIPS
This structure is increasingly common as it offers sole practitioners the opportunity to share clinical expenses making the entire practice more economical and competitive.
Associates maintain separate medical practices and share staff, premises, administrative facilities and various ongoing expenses. Associates are not jointly liable for matters arising from another associates practice, however may be liable for matters arising out of contracts (such as shared services) entered into by the associateship.
These liabilities can be avoided by using FORSYTHS to incorporate a corporate service entity to supply the shared services and each associate pays the incorporated entity a fee for the services provided.
There may be potential tax benefits where the medical practitioners are able to claim a deduction for service fees as expenditure they have incurred in the conduct of their business.
The Australian Taxation Office has specific guidelines as to when these fees will be deductible and FORSYTHS can guide you through the indicative rates set by the ATO and compare market prices, profits or mark up on costs with similar services in the open market. FORSYTHS can also assist in advising on the records required to substantiate these considerations.
2. PARTNERSHIPS
Medical practitioners acting together to carry on a business with a view of making a profit from that business. Revenues generated are pooled and profits occur when the shared expenses are deducted from that revenue. Profits are then split between partners in an agreed proportion.
Partners have the ability to tie the other partners with their decisions. Where one partner is negligent, the whole partnership may be liable for any claim against the negligent partner.
This is especially important as each of the partners is personally liable for the debts and liabilities of the partnership on a joint and several basis, whereby a party owed a liability by the partnership is entitled to take action against a single partner for the full amount of the debt.
FORSYTHS can assist to establish the partnership agreement, provide buy/sell agreements to protect partner’s individual interests, provide risk insurance, assist to train and supervise administrative staff and provide specialist taxation advice as well as advice in a range of associated services.
3. COMPANIES
Often mostly suited to larger Medical practices. In some cases incorporated medical practices are run for the benefit of shareholders who are not themselves medical practitioners.
Companies have the benefit of limited liability, however companies have more onerous financial reporting requirements and need to be careful with their accounting and bookkeeping. FORSYTHS can assist in establishing the company as well as bookkeeping and reporting systems.
Companies also make it easier to facilitate the exit of individual practitioners as a practitioner may sell their interest without greatly affecting the interests of other shareholders.
A company must have at least one director responsible for managing the affairs of the company and may be appointed / removed by shareholders.
A shareholder’s agreement is necessary as it can set out the boundaries of what the directors may or may not do without shareholder approval.
GET YOUR AGREEMENT RIGHT FROM THE OUTSET
Regardless as to which entity you choose, making sure that you have considered issues such as liability, the ease with which the practice may be sold, what happens when a new practitioner joins the business or an existing practitioner exits the practice and detailed documentation of rights and obligations between practitioners, can forestall costly dispute and headaches at some future date.
Any agreement should cover the obligations to pay expenses, right to profits and the procedure for a medical practitioner being admitted or exiting the structure.
The agreement should also include just who has the rights to the medical records: the practitioner or the business entity.
FORSYTHS CAN HELP WITH ADVICE ON ALL THESE ISSUES.