Whether you are in the middle of growing your practice, or still deciding whether to open up your own shop, it is important that you are aware of (and cater for) potential legal matters that may arise.
Anthea Faherty and Nicholas Camphin from McInnes Wilson discuss key things to consider when running a medical practice that ensure your business can weather any unforeseen legal complications.
Getting yourself set up properly
Creating and future proofing your structure
One of the most important decisions of establishing a medical practice is deciding on the business structure you will operate through. The structure you choose will have implications for your long term goals and personal lifestyle. The adoption of an inappropriate structure may create significant challenges for you in the future and may even expose you to personal risk and liability, over what you already have as a medical professional. We can provide you with advice on each structure and how it is organised in terms of income, expenses and the role of each entity.
Most medical practices undergo considerable structuring or restructuring throughout their life to ensure that the most tax effective outcomes are achieved for the doctors and their families. Such structuring is generally subject to the scrutiny of the Australian Taxation Office (ATO). Therefore, it is important that all persons in medical practices (and business more generally) review the tax arrangements to obtain confidence that, if there were an ATO audit, the arrangements would stand up to such an examination.
Use of a service entity
You may also consider the use of a service entity. A service entity is entity that employs all the administration staff, purchases and operates all the equipment, leases premises, etc. The practitioners then enter into associate/facility agreements with the service entity and are charged a fee by the service entity for the use of those amenities (usually in the form of a deduction of the fees earned by the practitioners). Often, this will result in a profit being earned by the service entity which can then be split with related parties (e.g. spouse and/or children) and related entities to achieve better tax outcomes.
Owning your business premises
The premises for the medical practice may be owned outright, leased from an unrelated third party or leased from a related entity (such as through SMSF structures etc). Irrespective, the terms of the security of tenure need to be clearly spelt out to ensure that there is ongoing certainty that the medical practice may be conducted from the particular premises. Such certainty ensures that your practice is able to generate goodwill for a future sale of the business.
Leasing your business premises
Where the premises are leased from third parties, an aspect of a commercial lease that is often overlooked by medical practices is the obligation to “make good” on the premises. That is, the obligation on a medical practice (as tenants) to return the premises to a particular state at the end of the tenancy. A make good obligation can trigger considerable financial cost at the end of a lease.
Another important of aspect of any lease is the option to renew. This creates certainty by allowing you to continue to occupy the premises for another term; if it proves to be appropriate. Additionally, if the medical practice is more valuable at a particular site, then ensuring the business can remain at that location is important to maintaining or growing the goodwill of the business.
Should you wish to establish your own practice, it is imperative that the terms of a prospective lease are properly reviewed prior to signing to ensure you have a full understanding of the terms of the lease, including what costs may be incurred at the end of the term.
Relationship between practitioners
If you are in business with other medical practitioners, it is important to document the legal arrangement between you and other stakeholders. Appropriate documents should be put in place to ensure that the rights and responsibilities of each stakeholder and medical practitioner (as key persons) are clearly set in writing. Such documents (depending on your particular structure) may include the preparation of associate/facility agreements, a shareholders agreement, constitution, partnership agreement or trust deed for a unit or discretionary trust.
Planning for the worst
You should also consider putting in an appropriate buy-sell arrangement to facilitate the sale and purchase of your interest in a business in the event a particular practitioner dies or suffers total and permanent disability. If you are a surviving party, the buy-sell arrangement provides certainty by setting out the right to purchase the business interests held by a deceased or disabled key individual (as opposed to being simply dealt with by that practitioner’s estate or power of attorney).
Having attentive and skilled staff ensures the smooth operation of any business. Accordingly, it is imperative that appropriate employment contracts are put in place with all staff.
Employment contracts do not need to be overly lengthy or complex documents. The agreement should cover the fundamentals of the relationship between you and employee, the duties of an employee, their remuneration and leave entitlements as well as the length of the employment contract (which may be ongoing and subject to a notice period for termination). It is also important that an employment agreement is tailored to your practice to capture your business’ working culture and environment.
An employment agreement may also include restraints (relating to not competing with the business etc.) which employees are subject to if the employee decides to leave the business. The restraint could also ensure that key employees do not approach certain suppliers or existing employees for a specified period after their departure or termination.
Protecting / Developing your brand and intellectual property
Trademarks can be an important mechanism to protect your brand. Registering a trademark prevents other individuals or businesses from using the same or similar image that is, or may become, synonymous with your medical practice. If your brand requires protection, it is important that you are properly advised on the registration process for trademarks as well as the kinds of intellectual property capable of being trademarked.
If in the course of your work and/or research, you (or your practice) develop innovative intellectual property or know-how that may radically change the treatment of a certain disease or disability, it is important that this intellectual property is protected with a patent. It is also important that you are advised on what level of protection a patent provides you and at what point that protection will expire.
McInnes Wilson Lawyers Pty Ltd ABN 30 137 213 015 | The information provided in this article is of a general nature and does not take into account individual objectives, legal and financial situation or need.
This article is intended to provide general information only. It is not intended to be formal advice and should not be relied upon as such. Formal advice should be sought for any particular circumstances pertaining to the reader of this disclaimer. The author disclaims liability for any loss incurred by any person who acts in reliance upon the information contained in this article.
Should the contents of this article be posted on any other publication then the reader of this disclaimer acknowledges that the author has no control over its nature, content and accuracy Any references to the author do not imply a recommendation or endorsement of the views in those other publications.
Legal matters to consider
If you want to know more about the potential legal matters around growing your practice or setting up your practice, please contact us for an introduction to Anthea Faherty and Nicholas Camphin.