The structure of practices can vary significantly according to needs. Each structure has different advantages and disadvantages covering the level of autonomy, risk, responsibility and cost. Therefore, each one will need to be reviewed carefully before decisions are made on which strategy suits the practice’s short and long term goals. Consultation with an advisor who specialises in medical practices should be undertaken prior to making this decision. The advice should include the taxable and legal consequences of each structure.
Structures for Medical Practices
Briefly, the types of structures available are:
- Sole trader;
- Trust, including a hybrid trust, a unit trust, a discretionary trust or a family trust;
- Company;
- Partnership;
- Associateship and
- Assistantship
The main features of each structure are detailed below. Deciding upon the right legal structure is the foundations for commencing a profitable business and obtaining medical practice structure advice is highly recommended.
Sole Trader
- Independence, and unlimited liability;
- Cheap to run and easy to administer; and
- The highest tax rates could apply.
Trust
- A flexible option could use with other practitioners or solo;
- Ability to distribute income; and
- Each beneficiaries’ marginal tax rate applies.
Company
- Limited liability;
- Can be private or public;
- Fixed tax rate of 27.5%; and
- Relatively more complex and expensive to set up and maintain, due to compliance with the Corporations Act 2001.
Partnership
- Two or more doctors carrying on a business with a view to profit;
- Partners are liable for each other’s actions; and
- Relatively cheap to set up and maintain
Associateship
- Doctors operate the practice together; however, each doctor operates a distinct practice for tax and legal purposes.
Assistantship
- This applies to non-owner doctors only;
- Here, non-owner doctors are considered assistants of owner doctors in the provision of medical services; and
- The assistant is an employee and subject to employment laws.
Choosing a Medical Practice Business Structure
Choosing to work with other co-owners – such as in a partnership or associateship – could have numerous benefits including:
- Sharing expenses;
- Sharing medical and administrative workload;
- Sharing of knowledge and intellectual advancement;
- Learning from one another’s work experience;
- Opportunity to attract more patients due to doctor specialties and credentials; and
- Ability to offer patients a variety of skills
However, these benefits could be minimal if the co-owners do not work well together or completely trust one another as business partners.
The benefits of practising as a sole trader include:
- Independence;
- Retaining all profits from the medical practice;
- Limited liability;
- Autonomy on business, purchasing and budgetary decisions;
- Responsibility and accountability for the practice; and
- Being the boss.
A practitioner who chooses to operate as a sole trader is still able to engage other professionals as independent contractors, offering benefits such as:
- Offer a varied level of skill and expertise within the medical practice;curveaccountants.com.au/budgeting-for-your-medical-practice-success
- Attract more patients due to this versatility of practitioners;
- Ability to manage a heavy workload by delegating patients to other doctors and/or technicians; and
- Being able to operate as a business for tax purposes (see https://curveaccountants.com.au/starting-a-medical-practice/ for more information).
