What is incorporation?
If you’ve been exploring ways to grow your GP practice, you may have considered ‘incorporating’. This is where you transfer all your business and contracts into a new limited company. It separates you and any partners from the business, making your practice a legal entity in its own right.
But what does this actually mean for your GP practice? In this guide, we outline some key things to consider when it comes to incorporating your medical business. You’ll also discover ways to protect your personal and business finances if you do decide to incorporate.
The first key step
Before we discuss some of the pros and cons, it’s worth noting that one of the first things you should do if you’re looking to create a limited company is to get legal and accountancy advice.
What’s right for one business may not be right for another, and if you’re currently in a traditional partnership model there are a few options to choose from.
There’s lots to consider and put into place, from appointing directors to understanding any tax benefits and obligations. Speaking to the experts will help you see the bigger picture and break down what can be a complicated process.
Why incorporate your GP practice?
One of the key advantages to incorporating your practice is the protection it can offer to owners (shareholders). The limited company itself (as a separate legal entity) enters contracts on behalf of the business and so holds the liability for business debts. This means that creditors cannot take any of your personal assets to repay company debts – your liability is limited to the value of your shareholding.
Admin ease
As a limited company, matters like property ownership should be easier to handle. For example, when directors and shareholders come and go, you generally won’t need to change any details on your contracts or update the Land Registry. This means one less admin headache for you and your partners.
If your GP practice is part of a Primary Care Network (PCN) then you, or one of your partners, may be ‘subcontracted’ to the PCN as a clinical director. If you want to protect the income you get from a PCN, you may need to take out commercial income protection. Most insurers don’t offer commercial income protection for partnerships, only companies.
Business models
Additionally, starting a limited company opens the doors to a range of business models. This means you can grow and run your business in a way that a simple partnership doesn’t allow. For example, it may lead to greater flexibility in choice of management structure and may offer more tax efficient ways to attract investment and to grow your business.
Employees could also have the opportunity to become shareholders, giving them a greater say in operations and decision making. With your staff invested in the future of your practice, you may foster a more positive partner-employee relationship. Prospective directors and stakeholders will also be able to get a share of your profits without handling any of the day-to-day business.
Employee benefits
Similarly, directors (and other staff) will now be paid under PAYE and qualify for employment rights, which could be attractive to those used to limited employment law protection. For example, you and any other employees may be entitled to maternity and paternity leave and there may be more flexibility around pension arrangements.
Remember to seek specialist advice, especially around any potential impact to NHS pensions. All-in-all, a limited company is often an attractive model for both employees and shareholders alike.
Personal benefits
Did you know that as a director of a limited company you can take out life cover through your medical business? This is effectively setting yourself up with ‘death in service’ cover, something which you can’t do in a partnership.
If this is something you’re interested in, a Specialist Financial Adviser from Wesleyan Financial Services will be able to help. They’ll be able to help you with life insurance and putting together a personal income protection strategy. Please note that advice charges may apply.
What are the downsides to incorporating?
Although incorporating can offer a chance to grow, you’ll need to adhere to specific financial, administrative (bookkeeping, reporting and compliance) and legal obligations. For example, limited companies must comply with the Companies Act of 2006, a more stringent set of rules than the Partnership Act of 1890 that you’ll be used to.
It means you’ll have to run your business in a way that adheres to these principles. It comes with legal responsibilities, like filing annual reports and tax returns. Part of this includes holding regular board meetings and can include making your annual filings and accounts public.
Payments, profits and costs
Any profits you make will belong to the company and not the individual shareholders. This means dividends will only be paid if the directors choose to do so. It’s worth noting that it’s illegal to make a dividend payment unless your company has made sufficient profit.
There are also costs involved in the set-up process, and you will lose some of the inherent flexibility offered by a partnership structure.
Partner disputes
In your current partnership agreement, you may have written terms that allow you to ‘expel’ your partner if you feel you can no longer work together. Things become more complicated if you’re now directors or shareholders in a limited company. In the same way that you can’t terminate an employee’s contract because of a relationship breakdown.
How we can help
At Wesleyan Financial Services, our Specialist Financial Advisers can support you with both your personal and your business finances. We understand the nuances of your profession and can support you whether or not you choose to incorporate. If you do, we can help you make the most of your limited company status. For example, we can help you:
Manage your personal finances
Have you considered what moving from a self-employed partner to an employed director might mean for your personal finances? When you’re focused on the future of your practice, you may not be thinking about yourself. But there are a few areas you might want to review when your company status changes. For example, your income protection and any retirement plans.
If you already have an income protection policy, you may want to tell your insurer about any income changes as a result of your move to a limited company. Updating your policy means you’ll have the right level of protection. If you don’t yet have income protection, now might be a good time to consider it.
Wesleyan's income protection plan offers increased cover for doctors and dentists. On top of a regular monthly income if you’re off work, you’ll also get access to free healthcare and support services to help you with your recovery.
Protect your reputation
As director of your new company, you’ll have many people to consider in your day-to-day role. From employees to shareholders, you’re responsible for making sure things go smoothly.
If something does go wrong, you may be at greater risk of being sued. Though you can’t predict when someone will make a claim against you, you can protect yourself and your practice with management liability insurance.
It works to provide legal cover for a variety of areas, including health and safety. This is useful if your employees are working around sharp instruments, medical supplies or in a generally hazardous environment.
Wesleyan Financial Services is a broker and insurance products are provided by a number of insurers.
Invest your business profits
If your business is turning a profit and you aren’t sure what to do with the surplus cash, you may want to invest it. A long-term commercial investment could be part of a wider financial plan to make your money work harder.
Commercial investments aren’t suited for any money you may need in the short-term as these types of investments typically last a minimum of five years.
You should also keep in mind that the value of your investments can go down as well as up, and you may get back less than you put in.