Joining a medical practice as an owner
Joining an existing medical practice as an owner is a big step, both in terms of your medical career and your legal responsibilities. It is important to properly understand what you are signing up to.
Becoming a partner
Partnerships require new entrants to sign a deed which provides that you will comply with the terms of the partnership agreement. The partnership agreement sets out the terms on which the partners agree to operate the partnership, including the distribution of profits and losses, the rights and obligations of partners to each other, termination rights, and what happens when a partner leaves. If you are joining an established partnership, it is usually offered on a “take it or leave it” basis. Nevertheless, it is always a good idea to seek legal advice, to ensure you understand what you are getting into.
The most important point for new partners to understand is that, by joining a partnership, you are jointly and severally liable for the debts and liabilities of the partnership. This means that if the partnership runs up a debt, you will be personally liable for that debt. If the partnership is sued and insurance does not cover that liability, you will also be personally liable.
Becoming an associate
Like a partnership, an associateship is built around an agreement, which governs the terms on which the associates agree to operate the associateship. Unlike a partnership, the associates in an associateship do not carry on a joint business. They run their practices independently and do not share income or profits. Their cooperation is limited to sharing premises and clinical and administrative support services. The legal effect of this is that they are not liable for each other’s actions, debts or liabilities.
However, practitioners in an associateship arrangement should be aware that the associateship model is relatively untested by Australian courts. The idea behind an associateship is that the practitioners run their practices separately. However, if the practice is run more like a partnership – particularly in relation to sharing of expenses and joint decision-making - a court may determine that the practice is, in fact, a partnership.
Becoming a shareholder
Other practices are run by a company in which the practitioners are shareholders and directors. The service company owns the practice assets and manages the business, and provide clinical and administrative support services to each doctor. While more expensive to set up, this model has the advantage that the company is a separate legal entity from its shareholders. The company’s debts and liabilities can generally only be satisfied from the assets of the company. From the shareholder’s perspective, the only money at risk is the amount they paid for their shares.
Most companies have two documents which govern how the company is run. The constitution sets out the basic mechanics of the company: how shares will be issued, how directors will be appointed, how directors and shareholder meetings will be held and so on. The shareholders agreement sets out any more elaborate arrangements that the shareholders wish to put in place: for example, in a medical practice where the shareholders are also practising doctors, the shareholders agreement may provide that a shareholder must sell or redeem their shares if they cease working at the practice.
Regardless of the business structure, it is important when joining a medical practice to properly understand what you are signing up to. It is always a good idea to seek your own legal advice regarding the business structure.
This article was originally published in Spring 2022 VicDoc, VicDoc is the magazine of the Australian Medical Association Victoria.