This is a subject which 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, and 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, for a company which 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 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 is involved in the process of incorporation?
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. This can be achieved 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 will be sufficient for most assets. There are some assets which may require 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, the legal documentation to address the premises arrangements needs to be put in place.
If you lease your premises from a third party landlord, you will need to arrange for your current lease to be assigned to your new company. That is sometimes glossed over, and 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 which require the staff to be formally advised 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, etc be entered into in the name of the company. Again this all serves as evidence of the incorporation.
Practical Steps
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 aspect 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. Whilst many of these aspects are no unduly difficult, don’t underestimate the time that they take.
NHS List Numbers etc
Last but certainly not least, make sure that the Health Board are aware of your change of status, and that NHS income is redirected to the company bank account through the use of new mandates.
Take legal and accounting advice from dental specialist advisers on NHS list numbers in particular. Getting that wrong can cause major issues for the future, and is a topic in its own right. The right professional advice is always important, but especially so in this instance.
