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So you’re thinking of registering a business?

Intended for the South African Market: It’s important to note that the below article is not intended to serve as advice, but rather to raise awareness of your options available. I hope to empower you with some insights so that you can have a more detailed conversation with your financial and legal advisors.

When looking into the options, you’ll need to consider your various objectives such as, personal liability and taxation.

What type of company should I register as a healthcare practitioner?

Not every business is a company and there are different types of companies available. You’ve most likely heard of options such as a sole proprietor, partnership, (Pty) Ltd or Incorporated. Each has their place and one may not be better than the other.

An important starting point is to understand the resultant personal liability of the available business or company structures. As a sole proprietor or partnership, you ultimately operate as an individual with full personal responsibility and liability.

Most entrepreneurs will talk about setting up a (PTY) Ltd for their business. A (PTY) Ltd separates and protects the owner(s) from any legal action and/or claims from creditors. However, healthcare practitioners retain direct liability for the treatment they provide. In other words, they can’t hide behind a (PTY) Ltd should a patient want to sue for malpractice. To this effect you will often hear about an Incorporated or Inc. as a company option being available. This type of company allows you to gain the benefits of a company tax rates, while shareholders will continue to remain personally liable for the Inc’s activities.

So how do you protect yourself against liability and malpractice claims?

Besides your financial reporting responsibilities to SARS and/or Cipro etc. Make sure you’re fully compliant around your record keeping and only work within the rules of the HPCSA. Secondly ensure you’re protected with sufficient insurance and malpractice cover. Lastly, if insurance in insufficient, an important point for personal wealth protection is to consider Trust structures with your financial advisor. While not tax efficient, a Trust is a separate juristic entity which allows you to separate your personal liability and personal wealth.

Given the personal liability risks mentioned, what will happen if you already operate as a (PTY) Ltd? In the event of any legal claims, the company structure will most likely not protect you from personal liability, but your tax rate of 28% will remain uninterrupted. Please discuss in more detail with your financial and legal advisors.

You may say to yourself, it sounds like a lot of effort and I’m still personally liable… so why not just stay as a sole proprietor or partnership…?

The simple answer… pay less TAX!

There are many reasons to consider when registering your Inc. such as selling your practice at a later stage, or clearly identifying your practice’s financial performance, however a major reason is for TAX.  Sole proprietors are taxed by SARS on a sliding scale based on your taxable earnings, where you can pay up to 45% in your personal capacity. While a company is taxed at a flat rate of 28%.

This doesn’t automatically mean that you should register your company. An Inc. will only become viable when you pay more than 28% (per 2020 business tax rates) in your personal capacity. Do some scenario planning with your advisors and run some calculations based on the SARS tax tables below.

Eg. Per the SARS tax tables: if taxable earnings are R660,000: You will pay R155,505 in tax plus 39% on taxable income above R584,200 (ie. R660,000 less R584,200 = R75,800. R75,800 x 39% = R29,562). Total tax payable on earnings of R660,000 is therefore (R155,505 + R29,562 = R185067).

This is approx. the 28% turning point for your consideration.

Source: www.sars.gov.za. (2020)