INCORPORATING A PRACTICE - HOW TO GET IT RIGHT

It is not part of a dentist’s practice to understand the intricacies of incorporating a small business, which you may well be undertaking on the advice of your accountant, who may not be dentally experienced themselves.


An incorporation which is not properly and professionally considered can result in significant problems for the dental practitioner should things go wrong.


The dental practice world for a long time now has been populated by large corporate bodies and the number of these organisations is rising, but there will remain those dentists who wish to remain independent and may seek to incorporate their business. Equally so, there will be those practices that have already incorporated where the procedures followed were “flawed”.


A “flawed incorporation” can be compounded over time as the business grows. It is therefore, essential that the incorporation is handled correctly at the outset.


A common problem arises with NHS practices. A GDS contract cannot be incorporated without the consent of NHS England. Those practices that seek to incorporate without such consent will not have a contract in the name of the new company and whilst day to day, the treatment offered will not change, when it comes to a change in practice ownership, the faults will come to light.


There are fundamental changes to consider when incorporating a practice. All the assets will transfer to the company. However, the largest asset, which invariably will be the GDS contract is not owned by the individual and therefore, without NHS England’s permission, cannot be transferred. Thus, if consent is not obtained, that would amount to a fundamental breach of the GDS contract which could result in the NHS terminating it.


The NHS contract will be the principal source of income for many practices. If the GDS contract is not properly incorporated, then when it comes to disposal of the practice, the major asset will not belong to the shareholders and will be in effect worthless and unsaleable. The company would be of little value and the prospect of disincorporation could have serious consequences.


Another common failure is to overlook notifying the lender of the intended incorporation. It is likely to be a condition of the bank loan that they are advised of any material change to the business and such a fundamental change could render the loan voidable.


If a practice comes to market, it will be the Buyer’s task to fully investigate the company and ensure that proper procedures were followed when incorporation took place. If that proves not to be the case, it will have the adverse effect of substantially reducing the price or causing the deal to abort. Inevitably, it will lead to significant delays in the timetable.


Additionally you should not overlook the HMRC position. Any irregularities in the procedure may well attract the interest of HMRC and result in a tax investigation which can prove expensive and lengthy. Such may put off a potential purchaser.


It is therefore, easy to see how there can be serious problems if procedures are not followed correctly. It is only when the practice is put up for sale that these problems manifest and at that stage, it may be too late to avoid the consequences referred to above.


We appreciate and understand that dentists are primarily concerned with the delivery of professional dental care and are reliant on others to take care of their financial and legal needs. Attention to detail is as important in the legal world as it is in the dental space and Jacobs Legal prides itself on delivering business efficiency for all of its customers.


If you would like an assessment of your needs please contact Jonathan Jacobs at Jacobs Legal on info@jacobs-legal.co.uk and request a consultation.

Principal vs. Associate-Led Dental Practices: A Financial Analysis

20 September 2024
Understanding the Leadership Structure The leadership structure of a dental practice can significantly impact its financial performance. There are two primary models: Principal-led and Associate-led. Principal-led: In this model, the principal dentist owns and operates the practice, assuming full financial and management responsibility. Associate-led: Here, the dentist is a self-employed contractor to the practice, the principal dentist having the responsibility to provide patients and where necessary, to offer assistance and advice. Financial Implications Income Distribution: Principal-led: The principal dentist retains all profits after expenses, potentially leading to higher income but also greater financial risk. Associate-led : Associates receive a percentage of the fees that they generate as income, providing more financial stability but limiting earning potential. Overhead Costs: Principal-led: The principal dentist is responsible for all overhead costs, which can be substantial. Associate-led: The Associate is responsible for a share of the lab expenses that they generate Debt and Risk: Principal-led: The principal dentist is personally liable for any debts or financial obligations incurred by the practice. Associate-led: The associate is not responsible for the practice’s debts and liabilities. Succession Planning: Principal-led: Succession planning can be more complex, as the principal dentist must find a suitable successor or sell the practice. Associate-led: Succession planning can be easier, as associates may have an option to purchase the practice or continue working under new ownership. Financial Considerations When evaluating the financial implications of a Principal vs. Associate-led practice, consider the following factors: Personal financial goals: Are you seeking higher income potential or a more stable income stream? Risk tolerance: How comfortable are you with assuming personal financial risk? Long-term goals: What are your plans for the future of your dental career? Local market trends: Are there any trends that favour one model over the other in your opinion and experience? Conclusion The choice between a Principal-led or Associate-led dental practice sale and purchase depends on your individual circumstances and financial goals. By carefully considering the financial implications of each model, you can make an informed decision that aligns with your professional aspirations and long-term success. Feel free to contact us for more help and advice.

Purchase Completed in York

19 August 2024
Congratulations to Joanne Nurse on the acquisition of a share in Adventurers Day Nursery in York. Joanne now becomes co-owner of the nursery with Helen Nurse. Many thanks to everyone involved in the transaction, especially Amardeep Nangla for his work done on the property side and all those at Barclays Bank who helped facilitate this transaction. All at Jacobs Legal wish Helen and Joanne all the best for the future and much success in the years to come.
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