Medical practices:

Introduction

When a doctor sets up a practice, their priorities are generally finding premises, building up their patient base, recruiting staff, and dealing with the numerous administrative procedures involved in launching their business.

The choice of legal structure is often given secondary importance. However, this decision can have significant implications for taxation, pension provision, the protection of private assets and the future transfer of the practice.

Whilst a sole trader status is often a suitable solution at the start, the growth of the practice may make a public limited company (SA) or a private limited company (Sàrl) a more appropriate option. How can one determine the right time to change one’s legal structure?

Why is a sole trader structure often preferred at the start-up stage?

For many doctors starting their own practice, a sole trader structure offers a simple and effective solution.

Its main advantages

• Limited administrative procedures
• Reduced set-up costs
• Simplified day-to-day management
• Great flexibility during the first few years of operation
• The option to offset certain initial losses against personal income

For most doctors setting up practice, this structure therefore represents an excellent gateway to medical entrepreneurship.

What is the difference between a sole trader and a company?

The main difference lies in the separation between the doctor and their professional activity.

The sole trader: a single legal entity

As a sole trader:

• The doctor and the practice form a single entity.
• The practice’s income is taxed directly as personal income.
• Social security contributions are calculated on the total profit.
• Private assets and professional assets remain closely linked.

The public limited company (SA) or private limited company (Sàrl):

A separation between the business and the practitioner

A limited company constitutes a separate legal entity.

The doctor then becomes an employee of their own company, which allows:

• The separation of private and professional finances;
• Access to a wider range of pension options;
• Optimisation of tax planning;
• Enhanced protection of private assets.
• However, this structure entails greater accounting, administrative and legal obligations.

At what point does setting up a public limited company (SA) or a limited liability company (Sàrl) become worthwhile?

There is no universal threshold applicable to all medical practices.

However, in practice, it often becomes worth considering when the annual net profit reaches around CHF 150,000 to CHF 200,000.

From this level of profitability onwards, the combination of:

• Salary;
• Social security contributions;
• Corporate tax;
• Possible distribution of dividends;

may offer greater flexibility than direct taxation as a sole trader.

A guide, but never a hard and fast rule

Each situation depends on:

• The canton of residence and where the business operates;
• The level of income;
• The pension strategy;
• Future investments;
• Wealth management objectives;
• Any plans for business succession.

A personalised analysis is therefore essential before any decision is made.

Situations warranting a reassessment of the legal structure

Certain stages in a practice’s life should prompt a review of the suitability of the current structure.

Changes in the practice’s activities

A change in structure may be worth considering when the doctor wishes to:

• Build up financial reserves;
• Take on a partner;
• Develop or take over an existing practice;
• Plan for a future handover;
• Strengthen the protection of their private assets.

Key warning signs

It is also worth giving the matter some thought when:

• The annual profit exceeds CHF 150,000 to CHF 200,000;
• A partner joins the practice;
• Commercial property is acquired;
• A handover of the practice is being considered;
• Retirement is drawing nearer.

The most common mistakes when choosing a legal structure

Focusing solely on turnover

Turnover is not a sufficient indicator.

Two practices generating the same turnover may have very different levels of profitability.

It is, above all, profit that should guide your thinking.

Underestimating the impact of deferred taxation

Many doctors realise too late the importance of tax instalments and adjustments.

Available cash flow is not necessarily cash that is available.

Neglecting pension provision

Some self-employed professionals limit themselves to Pillar 3a without putting in place a genuine long-term pension strategy.

Setting up a company too early

An SA or an Sàrl involves additional costs and constraints that are not always justified in the early years of operation.

The often-overlooked advantages of a public limited company (SA) or a limited liability company (Sàrl)

More flexible occupational pension provision

Forming a company can enable:

Enhanced pension solutions

• Setting up a supplementary LPP scheme;
• Opportunities for top-ups;
• Optimising retirement planning.

Better income management

Depending on the doctor’s circumstances, a combination of salary and dividends can offer greater flexibility.

Building up financial reserves

A company also allows funds to be retained within the business to:

• Finance future investments;
• Support the practice’s growth;
• More easily weather periods of slower business.

Beyond Taxation: Asset and Strategic Considerations

Taxation is just one of the factors to be considered.

Protecting One’s Private Assets

In a public limited company (SA) or a private limited company (Sàrl), liability is generally limited to the company’s share capital.

This distinction can offer additional security in certain professional situations.

Preparing for the Transfer of the Practice

The transfer of shares is often simpler to organise than a transfer of a sole trader business.

This aspect should be planned well in advance of retirement.

Facilitating certain forms of financing

Financial institutions generally value the transparency offered by a structure with formalised financial statements and a separate legal personality.

How does the conversion to a public limited company (SA) or a private limited company (Sàrl) take place?

A successful conversion requires thorough preparation.

Step 1: Analysing the current situation

The preliminary analysis focuses on:

• The practice’s financial situation;
• The valuation of the business;
• Existing contracts;
• Tax implications;
• Wealth management and pension strategy.

Step 2: Structuring the transition

Implementation generally involves:

• Incorporating the company;
• Transferring contracts;
• Making the necessary administrative adjustments;
• Setting up social insurance schemes;
• Organising occupational pension provision.

Adequate preparation often helps to avoid unnecessary costs and certain administrative difficulties.

Choosing the right structure: a decision that evolves with your career path

There is no universal legal structure applicable to all medical practices.

Each situation depends on numerous factors:

• Level of profit;
• Canton in which the practice operates;
• Wealth management objectives;
• Pension strategy;
• Development plans;
• Prospects for succession.

The question is therefore not which structure – a sole trader, a public limited company (SA) or a private limited company (Sàrl) – is the best, but rather to determine at what point a change becomes relevant.

The best solution is never the one applied automatically. It is the one that suits your situation, your objectives and your career path.