How to structure your medical business

Business Advisory

March 15, 2019

How to structure your medical business

Healthcare professionals looking to start their own business need to consider the numerous structures out there carefully before launching their new venture.

The decision to start a new business is an exciting time, but it is important to get the right advice when selecting a model that aligns with your individual circumstances.

A good structure supports your business needs now and into the future in order to realise your immediate and long-term goals.

Additionally, getting the framework right at the start avoids costly changes later on.

Here are the different business structures to consider:

Sole trader

As a sole trader, you continue your business under your own name rather than through a company, trust or partnership.

The sole trader model is the simplest and cheapest business structure available. There are fewer tax compliance obligations too, as business income and expenses are reported through your individual tax return.

However, you are legally responsible for all aspects of the business, meaning your private assets may not be protected.

You may not be able to take on some work where a company business structure is required, and your income is taxed at individual marginal rates that may be higher compared to other structuring options.

Company

A company is a separate legal entity and offers a degree of separation from the individual at a structuring level.

Companies provide an additional layer of protection for personal assets and may be eligible for small business tax concessions. The company structure also makes it easier to admit future colleagues into the business because it is based on shareholdings.

There are challenges as well, such as ASIC-imposed director duties that, if breached, can limit or even remove the asset protection offered by companies.

Additionally, companies that generate their income solely from the efforts of an individual doctor may be taxed similarly to a sole trader due to the personal services income regime.

Also keep in mind that if you own your practice building, then the land tax will be greater for companies than individuals or trusts.

Discretionary trusts

Trusts are also popular vehicles for businesses. They offer similar protection for personal assets like a company model, but with added flexibility which can be desirable at tax planning time.

Trusts have various beneficiaries who receive income from the business, allowing greater tax planning opportunities. Like companies, trusts may also be eligible for small business tax concessions.

On the other hand, trusts can only distribute profits to the listed beneficiaries, and it can be difficult to admit new partners. It is also important that the trust follows the rules set out in the trust deed.

Unit trust

A unit trust operates like its discretionary counterpart in terms of a trustee holding assets on behalf of the trust, however the profits are shared out via unit holdings rather than on a discretionary basis.

This may be a preferred option for some medical practitioners who want to potentially expand their business in the future by adding new members but don’t want a company.

Partnership

A partnership is a group of people or entities who carry on a business and distribute income or losses between themselves.

It should be noted that a partnership can be made up of any of the above structures. Once the income or losses transfer to the relevant partners, it will be subjected to the treatment per the chosen partner vehicle (i.e. individual, trust or company).