Allied Legal’s Guide On How To Structure Your Medical Practice
Allied Legal is increasingly advising on multi-practitioner medical practices. Clearly, medical professionals can see the benefits that combining forces can bring. For one, it creates economies of scale and allows for overheads associated with practice management, insurance, accounting and tax to share. It also allows practitioners to share knowledge and lean with each other as partners should.
In partnering up, it is essential for medical practitioners to set up a structure where they get to focus on what’s important to them: their patients, while the other managerial and administrative tasks are seen to on their behalf.
We find that, generally speaking, that a unit trust structure tends to suit the needs of specialist practices like a doctor’s clinic. In a unit trust structure, a trust is established and a company acts as trustee of the trust. It is common to see each doctor’s entity (usually the trustee of a family trust) is issued units in the trust and shares in the trustee company are issued to each doctor.
Generally, after finalisation of the account for a financial year, each unitholder can draw out and receive its proportion of the service business profits if they so choose. Often the unitholders agreement provides that unitholders can make gradual draws on expected profits during each financial year.
Provisions commonly seen in unitholders agreement
The unitholders agreement should address the following:
- An agreed approach regarding buy-in and buy-out of the trust.
- Qualification requirements for participating doctors and new entrants to the practice.
- General unitholder considerations such as the establishment of a board to manage the daily running of the service entity.
- Voting requirements for key business decisions.
- How they share the expenses.
- A restraint of trade if a practitioner leaves the practice.
- How they make the distributions.
Some of the advantages of the service trust structure
- The structure allows individual parties to maintain a service entity together, relieving them of managerial duties, while each practitioner gets to manage their practice separately.
- Practitioners as unitholders have the flexible option of joining or leaving the practice (subject to the terms of the unitholders agreement).
- The unitholders agreement can accommodate for practice issues such as when a doctor must go on leave due to unexpected illness or disability. Doctors can rest assured that their patients will not suffer if they are suddenly made unavailable.
- If the unitholder is a company, the tax will be billed at a corporate rate. However, if the unitholder is a family trust, the associated advantages of a family trust apply to the unit trust as a whole.
Please note that the unit trust structure is not suitable for every situation. When considering the right structure for you, you must take each unique set of conditions on board. Please contact firstname.lastname@example.org if you have any questions or require legal assistance.