Time Out: Operating a Limited Company When Owning a Dental Practice by Kate Beech

The responsibilities of dental practices operating as a limited company

by Kate Beech

The use of a limited company by a dentist to own a dental practice has increased over time. It provides the protection of limited liability afforded to a company structure. However, we often come across such structures where the dentist is trading as a limited company, but has very little evidence of this with the day-to-day running of the practice.

If a dentist wishes to operate as a limited company, it is vital that all contracts with suppliers—however small—are in the name of the company, as are all staff contracts and handbooks, and contracts with private patients or capitation scheme patients. The surgery insurance, amongst other items, should also be in the name of the company, which must also be clearly displayed at the practice.

With a limited company comes extra responsibility, because a dentist is appointed as a director and it is the director’s responsibility to ensure the company meets its obligations under the Companies Act 2006.

A director has seven duties to adhere to:

1. To act within powers.
2. To promote the success of the company.
3. To exercise independent judgment.
4. To exercise reasonable care, skill and diligence.
5. To avoid conflicts of interest.
6. Not to accept benefits from third parties.
7. To declare any interests in a proposed transaction or arrangement.

For most, these duties mirror those required of the dental profession under the various regulatory legislation. This is additional regulation to that which covers a sole practitioner, because directors also have their own duties to the company that they should adhere to.

Together with this, there is an additional layer of administration and compliance, because company accounts and corporation tax need to be dealt with. Dentists who are also directors will need to give consideration to their responsibilities under CQC regulations.

It’s important that any bank borrowing in relation to the practice is in the name of the company and repaid from the company’s bank account. Although, many lenders do require personal guarantees from the individual dentists which operate as security for that lender, meaning that the lender can seek repayment of the company’s debts or borrowings from the individual dentist should there be a default in repayment.

There is then the NHS Contract to consider, because this also should be in the name of the limited company; if not, arrangements should be in place that accurately document the relationship between the company and the dentist.

Whilst operating as a limited company, dentists are required to file certain records at Companies House. This entitles members of the public to view those documents, which for many businesses is not an issue. However, in a business that by its very nature is confidential, this may pose an issue for some dentists who would prefer to keep practice ownership, as well as accounting and financial information about the practice, private.

A limited company does afford, to some extent, protection of a dentist’s personal assets and liability, because it is its own entity. This means that it’s the company that owns the practice and it’s the company that is the entity used to raise funding. However, this protection can be lifted (known as ‘lifting the corporate veil’) in certain circumstances, namely where the company has continued to trade when insolvent, or where the director has carried out an act or omission with no authority to do so.

Dentists also remain liable for their own personal work and position of protection personal liability is fairly limited. Whilst this article has centred mainly on a dentist being a director, it is important to be aware that most directors also wear the hat of a shareholder as well.

Whilst shareholders are not so heavily regulated for those dentists who operate in business with other dentists, it is those shareholders who ultimately own the limited company, and it is those shareholders who are able to bring action on behalf of the limited company for a director’s breach of duty.

Where this is the case, shareholders are always advised from the outset of setting up their practice, to agree a shareholders’ agreement—and in some cases a directors’ service contract, similar to an employment contract— to govern that working relationship.

Whether or not a dentist decides to operate as a limited company is a personal choice, but it is wise that any dentists who decide to do so are aware of the legal implications and set themselves up as a company by way of incorporation in the correct way.

Dentists can ensure they avoid potential pitfalls by seeking professional advice and guidance from a reliable dento–legal team.?