Michael Royden explains what’s involved in incorporation for a dental practice.
This is a subject that we come back to fairly regularly as dental lawyers.
Practices decide that they wish to incorporate. In other words, start trading as a company rather than as a sole trader or a partnership.
They contact us to assist with the legal steps involved. Incorporation is often on the advice of their accountants, with the desire to minimise tax (which in the right circumstances is perfectly achievable).
What is a dental body corporate?
This is the phrase used in the Dentists Act, and various associated regulations.
It’s for a company that owns and operates a dental practice. On the face of it, it is a limited company like any other, with all of the regulation that that brings.
However, there are additional rules around the structure of a dental body corporate. Including rules around the structure of its board of directors, which dentists wishing to incorporate should be aware of.
What does the process of incorporation involve?
On occasion, dentists simply form a company, open a bank account in its name, and start trading through the company immediately without any further formality. However, that ignores the very simple fact that by incorporating you are transferring your business from yourself (and/or your partners) to a company.
You should therefore record that transfer in writing as evidence that it took place. You can achieve this through a fairly straightforward legal agreement known as a Business Transfer Agreement (BTA). That is very useful if anyone, such as HMRC, comes asking for evidence in the future.
Transferring the goodwill and assets of the business using a BTA is sufficient for most assets. There are some assets that may require a separate transfer, but we would advise our client where that is necessary.
What about the practice premises?
You will also need to consider how to deal with your practice premises. If you own them, you can transfer them to the company.
Alternatively, you may decide to retain them, in which case you should put a lease in place between yourself as the property owner/landlord and the company as occupier/tenant.
Either way, you need to put the legal documentation to address the premises arrangements in place.
If you lease your premises from a third party landlord, you should assign your new company to your current lease. That is sometimes glossed over.
In those cases the landlord can challenge the use of the premises by the company. Leave plenty of time to seek your landlord’s consent to assign the lease. They don’t always agree, and can take some time to respond to an approach.
Will nothing change with the staff?
Although the employees are unlikely to be hugely concerned about the practice becoming a company, technically speaking the business is being transferred, as is their employment.
There are therefore regulations that require you to formally advise the staff of the transfer and what it means for them (in a similar manner as when a practice is bought or sold). Failing to inform as required can bring claims from the staff.
Aside from the employees, you also need to ensure that associates and any other self-employed individuals in the practice have their contracts transferred to the company.
We would normally recommend new associate contracts be entered into in the name of the company. Again this all serves as evidence of the incorporation.
In addition to all of these key legal steps, there are various practical issues to address. Bearing in mind that your whole practice is transferring, you need to recreate all aspects of the practice within the company.
We have already mentioned new bank accounts. You will also need new insurances in the name of the company. You will need to advise all suppliers of the change to corporate structure, and so on.
While many of these aspects are not unduly difficult, don’t underestimate the time that they take.