The question on legal structures around pharmacy partnerships can be a difficult issue. To be correct, if I word that properly, there are lots of difficult issues.
For the purpose of this blog, I am using the term “partnerships” to mean the coming together of two or more people who have an interest in a pharmacy business. I am not referring to a partnership legal entity, unless otherwise stated of course. The choice of legal structures that can be used to “house” this arrangement is what I will delve into now.
When two or more people are coming together to buy a pharmacy, we have a bit more freedom of choice about what legal entity we choose. However, if a partner is being admitted into an existing pharmacy business, the incoming partner is restricted to the legal entity the current owner has. Meaning the incoming partner is either buying shares in the company, units in a unit trust, or is in partnership with the other owner. However, it is important that we carefully consider some critical issues.
1. The tax points – at what stage are the profits taxed, does the structure allow for income splitting and “tax efficiency”, and what are the tax implications of growing profits.
2. The ease at which partners can be admitted and exited.
3. Asset protection and liability issues
4. How the legal entity and owners’ interests are governed.
Here are a few points you need to be aware of with a few of the most common options.
Legal Partnerships
Partnerships themselves are not taxed. The partners are taxed separately on their share of the profit, not what profit was physically drawn out. This can potentially create an inequity, as the tax paid on what is physically draw out can be disproportional to normal marginal tax rates, particularly if some cash is being retained in the business for working capital, loan repayments or equipment purchases…
