How to Structure Your Medical Practice
Updated: Oct 21, 2019
Starting a medical practice can be an exciting time. However careful consideration should be given to choosing the appropriate business structure through which to conduct the practice.
There are several business structures to choose from. Selecting the one which best supports your business needs will ensure that you start it right and avoid costly changes in the future.
Each structure has its own benefits and limitations.
A sole trader conducts business under his or her own name.
The sole trader model is the simplest and least costly business structure to set up and maintain. There are fewer legal and tax compliance obligations compared with more complex structures.
A sole trader is singly responsible for all aspects of the business, from keeping records to meeting statutory obligations.
A partnership is a group of 2 to 20 individuals or entities who jointly control and manage a business and share profits or losses amongst themselves.
A partnership structure is relatively simple to set up, and can be made up of individuals, companies or trusts.
Its biggest advantage is that its capital is grown by pooling funds and resources together. Income and expenses are shared among the partners in proportion to their partnership interest, with each partners’ share of profit or loss reported in their own tax return.
A disadvantage of practising through a partnership structure is that each partner is jointly and severally liable for all liabilities incurred by the partnership.
A company is a separate legal entity and is responsible for its actions, taxation, civic and financial reporting obligations.
Practising through a company may help limit personal liability for business debts and provide an additional layer of protection for personal assets.
Profits are taxed at the company tax rate and a practice conducted through a company may be eligible for the small business tax concessions.
A company is the most complex structure to set up and maintain. Disadvantages can include high set up and administrative costs and more onerous legal and tax obligations. In addition, personal liability and asset protection may be limited or removed where directors breach their duties under the Corporations Act.
Care should be taken when structuring a practice through a company, as income solely generated from the efforts of an individual may be taxed as a sole trader under the personal services income regime.
A trust is not a separate legal entity but a structure with the sole purpose of holding assets and generating income for the benefit of the trust beneficiaries. It offers similar protection to a company structure for personal assets.
Profits generated by the assets held in the trust are distributed to the trust beneficiaries in proportions determined by the trustee prior to 30 June each year. Trusts may also be eligible for small business tax concessions and may have the ability to limit tax on profits by distributing income to beneficiaries on low marginal tax rates.
Setting up and maintaining a trust can be costly. A further disadvantage is that the trustee is personally liable for any debts incurred on behalf of the trust in their capacity as trustee.
If you have any questions please do not hesitate to contact your adviser at Jaquillard Minns.