April 30, 2009
Incorporation for Dentists – Self Employed or Limited Company? – Hot Topics Q & A
This Q&A has been answered by Amanda Maskery of Sintons solicitors, who specialises in working with dentists. Amanda can be contacted on 0191 226 7878 or click here
Q. My accountant has suggested that I consider changing my business structure from self-employed to a limited company. Can you please tell me what I need to be aware of and the pros and cons of such a move?
A. Unlike many other types of business, dentists have historically been denied the advantages of limited liability. New laws meant that with effect from 1 August 2006 dentists could run their practices using either a company or a Limited Liability Partnership (LLP).
The main legal benefits dentists have experienced operating through either an LLP or a company is that dentists will no longer be personally liable for debts incurred by their practice, and can protect their personal assets from business risks. This would include protection from liability for personal injury claims, to the extent not covered by existing insurance arrangements.
Additional benefits of operating through a limited company include greater flexibility in raising funding for the practice through outside investment and the ability to use to greater effect employee incentives such as share schemes to incentivise key players like practice managers or certain associates.
The process involved to establish the new business is relatively straightforward and involves:
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Formally registering the company or LLP at the DTI Central Registry (Companies House). In the case of a Company the governing documents also need to be registered as part of this process. In the case of an LLP the partnership agreement itself does not need to be registered, which means that some privacy as to the structure of the business can be maintained.
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Transferring the existing business to the new company or LLP by way of an incorporation agreement. This will transfer all the contracts, property, goodwill and business to the Company or LLP. Employees will automatically transfer with the business. Any document will be tailored to reflect the nature of the practice and the consequences of the transfer.
Whilst the legal process is straightforward the administrative tasks may appear daunting. Consideration will have to be given to a lot of practical issues including:
- The name of the new entity. There are still restrictions on the use of words such as “dental” “dental practice” “dental surgeon” or “dentists” and if a dentist wishes to use a protected word in the name of their LLP or company, then they will need to obtain permission from the General Dental Council.
- Despite the fact that the new entity will give limited liability, dentists will still need to maintain professional indemnity insurance and should speak to their insurance company well in advance to ascertain what changes will need to be made to their insurance policy on incorporation.
- Will any leases or property need to be transferred? This can give rise to additional costs including stamp duty.
- Detailed advice is needed from tax advisers as to individual tax situations – which must play a major part in the decision making process.
The exciting changes have led to the market becoming more buoyant and Sintons LLP, through Amanda Maskery (Associate) have been involved in over thirty transactions since the introduction of the new legislation, varying from sales and purchases of practices to incorporations and are listed on the British Dental Association website as regional experts in this area. Amanda Maskery has also been newly appointed to the Association of Service Providers to Dentists.
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Filed under Q&A, UK Resident Dentists by Ray Prince
