It’s probably not a question you’ve considered, but what structure do you see your business of therapy taking, sole trade, partnership or company? Most therapy practice are sole practices, ie one person practising on their own. A much smaller number operate as partnerships, and still fewer as limited liability companies.

In legal terms, the main difference between these choices relates to what happens in the event of insolvency (ie, if you go broke!) In a sole trade, the individual is personally liable for all the debts of the business, so if a sole practice goes bankrupt, the practitioner may be in danger of losing their home,  (even if they did not practice from it,) or any other personal assets they may have, such as a car, shares or bank accounts. However, a sole trade means you get to make all the decisions on your terms, in your own time. You’re not accountable to anyone but yourself!

In a partnership, each of the partners may be liable for all the debts of the practice as a whole, even if they were not personally involved in the situation which gave rise to the problem, or even if they did not personally incur the debt. Partnerships are governed by partnership law, and because more than one person is involved, they require greater organisation and co-operation. It’s usual to have a partnership agreement that sets out the terms on which the partners operate as a team. A partnership agreement will cover such issues as how much each partner is going to invest in the business, how profits or losses will be divided, and what happens if one or more of the partners is unable to work through illness, death or some other crisis. The big advantage of working in a partnership is having the expertise, shared skills and knowledge, companionship and support of others around you when making business decisions.

In a limited liability company, much of the advantages of a partnership are also present. The extent of  liability (if there’s insolvency) is generally limited to the amount of capital invested by the share holders, and this is a major advantage if it seems likely that the business may be subject to big claims (for example, by dissatisfaied clients). A limited company costs more money to set up than a partnership or sole trade, and will have additional expenses, for example, audit or legal costs. It’s a much more formal structure, and is governed by strict laws which lay rules about its operation.

Tax laws are also different for partnerships and companies than for sole traders, so good financial advice is essential.

So which to choose? A company provides the most protection in the event of insolvency, a sole trade the most flexibility from an organisational aspect. Working by yourself means you carry the can on everything, but are highly independent. Working with others gives greater scope for growth, but means less independence. It is a question of weighing the pros and cons, and choosing the most appropriate vehicle for your practice, as there are significant implications in each choice.

I am greatly simplifying what is a complex issue here, so do get legal and financial advice about what is the best structure for you before you decide.

If you’d like help with any aspect of setting up your practice, please leave your question or comment in the box below, or contact me here.