“I made it!
Now what’s next for me?”
After years of exams and assignments in medical schools and as a houseman, “what should I do next?” you ask yourself. “Should I continue my career and service in the government sector, be a general practitioner in the private sector, join as a partner in an existing practice, or incorporate my own practice?”
Have you ever spent enough time in discussing or considering the various paths that you may have?
Joining the private sector of established healthcare groups as salaried professionals is one of the young doctors’ favourite option, considering advantages such as lack of financial worries, work-life balance and guidance from senior doctors.
However, after a few years down the road when your patient base increases, you may think of setting up your own clinic; simply because you realise the efforts that you have put in would allow you to earn twice or more if you were operating your own practice.
Be Self Employed
While many new medical professionals give a lot of thought to location, clinic décor, new and hi-tech equipment; choosing the proper business structure does not get the attention it deserves. Many medical practitioners do not realise the structure of their business makes a difference in the quantum of tax payable if the business is successful, and how it can protect your wealth and avoid bankruptcy when the business fails and is subject to litigation.
Those with great ambition may decide to venture out as a business owner by:
- setting up their own clinic, or
- joining an existing practice as a working partner; or
- being a full time locum in few clinics.
Regardless of your choice, you need to understand the different businesses’ setup and consider the most appropriate setup for you. Generally, you have an option to decide whether you want to start your venture as a sole proprietorship, partnership or as a private limited company.
Setting Up Own Clinic
Running the clinic in the form of sole proprietorship is the most common form of business setup. Sole proprietorship is the simplest form of business structure, as the cost is low and the submission of the financial accounts is simple and easy to prepare.
However, running a clinic as a sole proprietorship carries unlimited liability on the owner. You are personally accountable for liabilities occurred during the course of business. Whilst doctors have unlimited professional liability, it is important to limit the non-professional liability. For example, if a patient falls while in the clinic, the doctor, being the owner, will be responsible financially. To manage this risk, most doctors prefer to setup a private limited company to own the sole proprietorship business.
Besides, tax will be imposed on the owner. It is likely that a doctor would earn a minimum of $200,000 per annum. Having an income of $200,000, the tax liability of the doctor will be in the region of $20,000 (option 1). If the owner is a private limited company, the tax will be in the region of $7,000 (option 2).
Most people will set up a sole proprietorship and the owner is a private limited company.
If you have decided to partner with your friend(s) to start a new clinic or join an existing Partnership, you have to decide on the structure of the Partnership.
A partnership can be owned by two or more individual partners. This is the most common form of partnership setup. Alternatively, you may want to consider having the partners in a private limited company. In other words, the partnership is owned by two or more corporate partners.
If you have decided to proceed with Partnership as the business setup, it is important to have a partnership agreement in place. The important terms contained in a partnership agreement, included but is not limited to, the role and responsibilities of the partners, the capital contribution (both in cash or in kind), the remuneration package for the partners, the profit sharing ratio and exit clauses. This agreement provides the common understanding on how the partners are to work together. This will also avoid various arguments among the partners and it will form the basis of understanding in the event of conflict occurred between the partners.
Here are some of the common problems you might face in a partnership:
“Dr. A did not move into the new clinic setup at all. He is still at his old practice.”
“Dr. B is still practicing in the government hospital and has not left his job yet.”
“The founder has been drawing management fees every month.”
You might end up thinking “This is not fair!”
Therefore, in order to avoid the above examples or any other situations, it is advisable to execute a partnership agreement which binds all the parties to the terms and conditions as agreed upon. It is the simplest agreement that will ensure that all parties to the agreement carry out their fair share of duties and responsibilities.
Incorporating A Private Limited
Incorporating, while definitely not for everybody, offers several distinct and money-saving advantages over the other types of entities.
When you incorporate, there are numerous tax advantages at your disposal that are virtually impossible to accomplish with other business entities. When you incorporate your business, you create a separate and distinct legal entity. Because of this, there are many transactions that you can structure between you and your corporation to save on taxes.
There is tax exemption given exclusively to private limited company. Private limited company is taxed at the flat rate of 17% while resident individual is taxed on a progressive rate of 0% to 22%.
As a separate legal entity, you can may enjoy the advantages of relief and deduction given by CPF for both the employee and employer by arranging yourself as an employee of the newly incorporated company. There is also partial tax exemption for the first $300,000 chargeable income for private limited company.
Regardless of the form of setup, it is important that you purchase keyman insurance as part of your risk management. Since you are investing a sum of money to start the clinic, it is important to insure yourself for the potential loss of your capital and profit in the event of demise or total and permanent disability.
Joining An Existing Practice As A Working Partner
Joining an existing practice is perhaps a less risky move compared to setting up your own clinic. Very often, you will be under the supervision of the existing partners and over a period of time, you may become the main partner working in the clinic. This may be due to the expansion plan of the existing partners or this may be due to the increasing age of the existing partners.
Regardless of your future role in the practice, you may want to consider setting up a private limited company to receive your income and if necessary, become one of the partners in the practice.
You may also like to explore having a business succession plan with the existing partners as part of your terms for joining them. Business succession planning ensures that the shares of the deceased partners are transferred to you with little or no consideration. This will allow you to be the owner of the clinic if the other doctor passes on.
Being A Full Time Locum In Few Clinics
Being a full time locum seems to be the trend of new doctors that join the practice as many of them are already a locum whilst they are serving their bond. This arrangement of being full time locum may not be feasible as a long term career. Again, it will be beneficial for you to setup a private limited company to receive your income for tax planning purpose.
Different working relationship structure has its pros and cons. It ultimately depends on your desired end-result and your area of specialty.
With this plan of roping in more doctors to the clinic setup or hiring more doctors, usually it signifies the intention of the doctor in looking into succession planning for their business. Doctors, in particular, spend the bulk of their time looking after patients. They may neglect the importance of planning for the practice and their families.
Business Succession Planning ensures that families get the fair value of the practice. It also ensures that the remaining working partners/shareholders can continue the business without any interruption.
Benefits of Business Succession
Regardless of the type of business setup of the medical practice, it is important to have a contractual business succession plan agreed by all the doctors. A contractual business succession plan will offset the major disadvantages associated with the different types of business setup and it provides the following benefits to the various parties involved:
- ensure that he or his family receives the fair value of his shares in the business; and
- ensure that there is a ready buyer with the necessary funds to buy over his shares in the business.
- ensure that “retiring” owner’s interest will not be sold to third party; and
- ensure that there are ready funds to purchase the interest of the “retiring” owner.
- enable the practice to continue without any disruption; and
- enhance the confidence of staff and patients.
With a business succession planning in place, there would be adequate funds to buy over the interest of the “retiring” owner, a “win-win-win” situation is created for the “retiring” owner, the “remaining” owner and even the practice.
No matter what your plan is, I hope this read will help you make empowered decisions and put you on the path towards the summit of success!
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