Limited liability for dentists: What to consider
Unlike many other types of business, dental practices have historically been denied the advantages of limited liability. However, the introduction of 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). Amanda Maskery, Chair of the Association of Specialist Providers to Dentists in the UK and partner and head of the dental team at Newcastle law firm Sintons, details the implications of changing a dental business structure from self-employment to a limited company.
The main legal benefits for dentists operating through either a company or an LLP is that dentists are no longer 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 participants, such as practice managers or certain associates.
The process involved in establishing the new business is relatively straightforward and involves formally registering the company or LLP at the Department for Business, Innovation and Skills’ 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.
Dentists also have to transfer 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.
While the legal process is straightforward, the administrative tasks may appear daunting. Consideration will have to be given to many practical issues, such as the name of the new entity. There are still restrictions on the use of words such as “dental”, “dental practice”, “dental surgeon” or “dentist”. If a dentist wishes to use a protected word in the name of his or her company or LLP, then he or she will need to obtain permission from the General Dental Council.
In spite of the fact that the new entity will provide limited liability, dentists 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, and this must play a major part in the decision-making process.