When first setting up your veterinary practice one of the first, and arguably one of the most important, decisions you will make will be your business structure.
There are a number of ways in which you can structure your veterinary practice; these are listed below.
A sole trader is a business run by an individual without the incorporation of a company or an LLP. If you are setting up a practice on your own, this is one of your options. However, we normally see sole traders for smaller types of businesses and not normally for veterinary practices.
It is important to bear in mind that all contracts in relation to the practice, such as with a buying group or wholesaler or any leasing or hire purchase agreements will all be in your name. The employees will also be employed by you personally. If the practice defaults under a contract or a claim is made against the practice then you may be personally liable.
One of the benefits of setting up as a sole trader in that there are little or no costs associated with setting up, and your accounts won’t be available on the public record. There is also little formality in running your business.
The main drawback, however, is that you may personally have unlimited liability for outstanding business debts, other liabilities and claims.
A partnership is a business that is automatically set up as soon as two or more persons carry out business with a view to making a profit. This occurs without the incorporation of a company or an LLP and irrespective of whether a formal partnership agreement is entered into.
As with a sole trader, it is important to bear in mind that all contracts in relation to the practice, such as with a buying group or wholesaler or any leasing or hire purchase agreements will all be in the name of the partnership.
You will, as individual partners, remain personally liable if the practice defaults under a contract or a claim is made against the practice.
Many partnerships choose to have a formal partnership agreement written up which governs the relationship between the partners.
One of the benefits of setting up as a partnership is that your accounts are not available on the public record.
The main drawback however is that you may have unlimited liability for outstanding business debts, other liabilities and claims. As it would be sensible to have a partnership agreement in place there may be some costs associated with preparing that agreement.
Limited Liability Partnerships (LLPs)
When two or more persons want to set up a practice, they may choose to structure it as an LLP.
An LLP is an incorporated entity that is similar to a partnership, but with one key difference. The members of the LLP have limited liability and are therefore not personally liable for the debts and claims of the practice.
All contracts and employment contracts are entered into by the LLP and therefore any liability under those agreements’ rests with the LLP.
The main benefit of having an LLP is that the members of the LLP will have limited liability.
The drawback of having an LLP is that there will normally be a cost associated with its incorporation, the LLP’s accounts are publicly available, and filings will need to be made at Companies House.
Private Limited Companies
A limited liability company can be set up by one or more people and the company has its own separate legal identity.
The persons who own the company are called the shareholders, and they normally benefit financially from profits through dividends and growth in the value of their shareholdings.
In addition a company has directors, who are responsible for the day-to-day management of the veterinary practice and we often find with veterinary practices that they are the same people as the shareholders.
A private limited company is an incorporated entity and at incorporation, the liability of the shareholders is limited to the amount they pay for the shares. This is often a nominal sum such as £1.00.
Contracts and employment contracts are entered into by the company and therefore, any liability under those agreements rests with the company.
The main benefit of having a limited company is that there can be a separation of responsibilities within the company. The liability of the shareholders and the directors is limited, in that the company as a separate legal entity will be liable.
The drawbacks of setting up a limited company are that the directors are, under company law, subject to responsibilities and duties towards the company, there are costs associated with the incorporation of a company. The company’s accounts are also publicly available and filings will need to be made at Companies House.
It is important to get your structure right at this will determine who makes your management decisions, how much tax you pay, what records you need to keep, who has financial liability and how you may raise money.
We mainly see our veterinary clients set up as companies, so as to benefit from the limited liability, and we have also seen some veterinary practices set up as LLPs, and we have seen even fewer run as partnerships or sole traders.
We would recommend seeking both tax and legal advice before setting up the veterinary practice to explore the different options and the benefits and drawbacks of both.