After all those years of school, you’ve finally got your degree. Now what? It’s time to set the foundation for your working life.
Professional college graduates can organize their practices in a number of ways. First, and where most professionals will begin, is as an employee. A number of years later, you might be invited to buy into the practice or perhaps you’ll start your own. However your career plays out, there are certain matters to be considered at each stage.
When hired as an employee, you will likely be presented with an employment contract. Control your excitement over finally making money, take a step back and read the contract. Make sure you understand it. If you don’t, ask questions. Better yet, take the contract to a lawyer to review. You will want certain points to be clearly defined in an employment contract, such as the term, salary, benefits, expectations of the employer and reasons for termination to name a few. Other important provisions are confidentiality, non-disclosure and non-competition clauses. These sections restrict you when leaving the practice; you will want to understand them ahead of time rather than getting a nasty surprise when you want to leave.
Buying into an existing practice
If you are offered the chance to buy into a practice, again, don’t act too quickly. Sign on the dotted line only after you have properly investigated the business. Take the financials, records and material agreements of the practice to your own accountant and lawyer to review.
Even if you have been an employee of the practice for a number of years, you won’t know how the practice has been run, what profit it makes or what debts and liabilities it has. You will be at least partially liable for those debts and liabilities when you become a part owner of the practice, so you need to know what you’re getting into.
Consider the proportion of the business being offered to you and the cost. Does the buy-in price reflect the value of the practice? Will you be a minority owner? If so, do you have any decision-making ability? Are there agreements in place that govern the relationship between the owners? If so, you will want to make sure they include the rights and responsibilities of the parties and an explanation of how profits, expenses, debts and liabilities are divided. Exit strategies are also extremely important – it is much easier to agree on exits when everyone likes each other instead of waiting until a dispute arises.
If you don’t agree with any of the provisions of the agreement that is in place, you need to negotiate the terms before you buy in and become bound by them. If no such agreement exists, suggest that one be drafted, unless you like your decisions made for you.
Starting your own practice
There are several options for organizing a practice – sole proprietorship, partnership, or corporation. Each has pros and cons. Sole proprietorships and partnerships have relatively low set-up costs but offer fewer tax benefits and no limits on liability. Corporations have higher set-up and ongoing costs but offer a lower tax rate and higher protection from liability. For example, debts of your corporation are separate from personal debts. Unless you agree otherwise, creditors cannot access your personal assets to pay the debts of the corporation like they could with a sole proprietorship or partnership.
If a professional wishes to incorporate, they must use a professional corporation. PC’s are like a “regular” corporation except they are subject to extra rules and restrictions included in the Bylaws of the profession’s governing body (e.g. for dentists, the College of Dental Surgeons of Saskatchewan). For instance, there are restrictions on the name you can operate under, who can hold shares and who can act as a director of the PC. The limitation of liability that regular corporations provide is also reduced. You cannot avoid personal liability for negligence or malpractice but will still enjoy protection from creditors.
It is possible to carry on a combination of the above. Professionals will sometimes incorporate a professional corporation which then becomes a partner in a larger practice. This combines the protection afforded to corporations with the benefits of being part of a group of practitioners, such as overhead cost sharing.
In conclusion, most professionals will experience all of the above during the course of their career. No matter what stage you are in, it is always advisable to consider your options, read everything, investigate and have someone in your corner to help protect your interests.