Yes, Medical Practices Owners need a Formal Agreement with their own Business...
This is a conversation I have had many times, so I thought I would write an article about it for you as a Practice Manager or medical practice owner on the topic. As a legal practitioner with many years of experience working with medical and health practices, I can say with certainty that owners of practices do need a formal agreement with their own business. The need for this has become considerably more important in recent months, hence the article.
Documents for Team Members
Doctors or allied health practitioners (or their practice managers) are often very good at formalising arrangements with team members. They can even, at times, be committed to preparing a Shareholder’s Agreement or Owner’s Agreement with the other owners of their practice. An area of oversight can be dotting the i’s and crossing the t’s with respect to your own personal, corporate compliance as an owner.
Huh? It's my business. Why do I need an agreement with it?
While this may seem like a simple matter of common sense, many business owners fail to realise the importance of having a written agreement in place. As a medical or health practitioner, you will often have the business of the practice in a separate legal entity from the entity you provide the services to the practice in yourself.
What does that look like?
For example, your practice services entity may be a company, or it could be My Medical Practice Company Pty Ltd. You may provide services to patients in your own name under an ABN (because you need to pay PSI tax and do not see the point of having another separate legal entity) – say you are Dr. Doright.
So, your agreement, whether a Medical Services Agreement, a Services and Licence Agreement, a Services and Facilities Agreement or a Room Rental Agreement, depending on how your practice runs, would be between My Medical Practice Company Pty Ltd and Dr. Doright.
But why?
One of the primary reasons for having a formal agreement is to ensure that there is a clear understanding between the business owner and the practice as separate entities. This can lead to confusion and potential legal issues if there is not a clear understanding of how the two entities are related and the arrangement between the two.
Also, if you have business partners, i.e. co-owners who are also medical or health practitioners, having an Agreement in place can assist if there is a dispute or disagreement between the parties. Even if there is a Shareholder’s Agreement in place (which, of course, we wholeheartedly recommend), the services agreement aspect can save many headaches and dollars in the event that there is a parting of the ways for one reason or another.
By having a formal agreement in place, the owner can ensure that there is a clear separation between the business and the services provided. This can help to protect the owner's personal assets in the event of a dispute or other legal action.
Another reason why a formal agreement is important is to ensure that there is a paper trail documenting the relationship between the owner and the practice. This can be important in cases where the business is audited, or if a regulator comes to you asking questions, you have a very clear paper trail that you can show them.
What sort of regulator are you talking about?
An example could be if a medical practice is audited by the Australian Taxation Office (ATO) or State Revenue Office (SRO), the owner may be required to provide documentation proving that they are not using the practice to shelter personal income or evade tax obligations. Without a formal agreement in place, it can be difficult to provide this documentation, and the owner may face penalties or fines.
In addition to protecting the owner's personal assets and ensuring compliance with regulatory requirements, a formal agreement can also help to prevent disputes between the owner and the practice or the owner and their fellow shareholders. By clearly outlining the rights and responsibilities of each party, the agreement can help to prevent misunderstandings and disagreements that can lead to costly disputes or litigation.
For example, if the owner of a medical practice decides to sell the business, a formal agreement can help to ensure that the sale proceeds smoothly and that both parties are satisfied with the outcome – i.e. there are no surprises.
Same, same, but different
You may have a Services Agreement you use with other professionals in the business, and you want to use that one off the shelf. Before you do so, ensure you read it. As lawyers, we suggest that the owner’s agreements be slightly different. For example, if you have a Shareholder’s Agreement or Owner’s Agreement – the termination provisions of that Agreement should work back to back with the Services Agreement. If you are in business with others, for example, you may not want them to provide 30 days’ notice to you before they leave the business (and they may not wish this of you!). You may think this is unlikely, but no one can see the future, and at You Legal, we want you to be protected, whatever the future holds.
Summary
Overall, the benefits of having a formal agreement with your own business are clear. By ensuring that there is a clear separation between the owner and the practice, protecting personal assets, complying with regulatory requirements, and preventing disputes, a formal agreement can provide peace of mind and help to ensure the long-term success of the business.
If you are a medical or health practice owner and do not have a formal agreement in place with your business, I strongly encourage you to seek the advice of a legal professional. A lawyer with experience working with doctors can help you to draft an agreement that meets your specific needs and protects your interests. With a formal agreement in place, you can focus on providing quality care to your patients and growing your business, knowing that your legal obligations are being met.
Next Steps
Our team has extensive experience in providing advice and insights into best practices in providing service agreements for practice owners. To discuss this, contact our team here, and we will put you in touch with the best professional for your needs.