Navigating the ins and outs of starting a new Business

Navigating the ins and outs of starting a new medical business can trip up the unwary doctor. Michael Rourke shows what to watch out for at the very start

First published in Independent Practitioner Today March 2020

In every walk of life and in every profession the last 20 years have seen radical changes in how individuals access services and receive professional advice. The most obvious change is, of course, the advent of email and the speed of communications. Of course, there has always been progress but the speed of change in recent years as a result of technological advances has been immense.

Whilst this isn’t by any means limited to doctors, we are increasingly seeing medical practitioners who approach us for advice, wanting to engage in private business in a different way.  With increasing use of smart phones and apps in recent years, there are doctors among the innovators. Individuals have seen the success of operators such as Babylon and wondered whether they could be part of the tech revolution.

The traditional issues that individuals have to consider when starting a new business include a mixture of the legal and financial:

  • what is the right legal structure (company, LLP, partnership or chambers model)?
  • what are appropriate governance structures?
  • crunching the numbers on the business plan,
  • obtaining appropriate insurance policies,

However, the new online business models, and modern ways of working, include some legal pitfalls for those who are not wary. For example:

  • If the new business will involve practitioners or individuals other than the owner, how are they to be “engaged” and what is the line between a contractor, employee and worker?
  • What does the Consumer Rights Act have to do with medicine? The Act covers a wide range of areas, including digital services, and contracts with individuals for medical services. It is important to be aware of what can and cannot go in your contracts. It is, for example, impossible by way of a contract with your patients to exclude liability for personal injury or death caused by negligence.
  • Some business models involve electronic monitoring of symptoms, or software-based diagnostics. Even apps – such as those designed to help a person monitor or control their health – can count as ‘medical devices’ and therefore need to comply with the Medical Devices Regulations. This can be a complex area.
  • The advent of GDPR and the new Data Protection Act 2018 have made many more people aware of their data rights. When designing your business model, you will need to consider data protection from the outset- how is the data to be stored, who can access this, what systems will be in place to prevent unintended, accidental or other breaches of data security.  The ethical duty of confidentiality, the growing awareness of data security issues and the potential for fines make this an important area. Even “micro” businesses (as defined in the relevant regulations) need to be registered with the Information Commissioner as data controllers unless exempt.  Almost certainly a healthcare business processing and retaining personal data will need to be registered with the ICO.
  • With increased creativity and innovation, Intellectual Property is particularly important. Intellectual Property (“IP”) includes all kinds of intangible properties, most notably, trade-marks (for your company name or logo), copyright (for written or artistic works including source code, content and designs) and patents (for processes and inventions that are new). You should consider who owns any IP being used and whether it is sufficiently protected. As an example, app development is often outsourced to consultants or contractors. Those consultants or contractors will automatically own the copyright to the software they develop, unless a contract provides otherwise.
  • If you are planning to outsource the app development how will you protect your idea from being exposed to possible competition? When dealing with outside parties, you should consider entering non-disclosure agreements to ensure your innovative ideas are kept confidential.
  • If you decide to market your app on a particular platform, such as the Android or Apple app stores, it will be subject to certain terms and conditions. These terms will govern how you can operate and market the app. You should consider these terms and conditions early in the development process or you could see your app removed from the app store or even fails to launch due to non-compliance.
  • A key question is whether the business itself needs to be registered with the Care Quality Commission (or Healthcare Inspectorate Wales in Wales). This can be a complex area depending on the nature of the business model, but it is one that it is essential to get right.

Many businesses start as an idea between friends that develops from drawing board to board room, and this is no different in medicines as elsewhere. An often unwelcome piece of advice to prospective business owners is to plan, from the outset, how the business (or individual participants involvement) may end. This could be whether the business is a roaring success, or not performing as well as hoped.

For example, if you are to all own shares in a company formed for the purpose of the business, you need to consider:

  • Are all the shares to have the same powers and rights to dividends?
  • Can the shares be sold to other people?
  • If a shareholder retires/leaves working in the company will they retain their shares?
  • If a shareholder is to have their shares bought back from them- who by, what will the payment terms be, who will decide the value?
  • Who will the directors of the company be – they will manage the day to day running of the company?
  • What decisions will be reserved for the shareholders to make?
  • What happens if you decide to sell the company and the other shareholders refuse to sell their shares? Can they be forced to sell their shares?

Difference of opinion on the running of a business can cause tensions between friends to run high, and for friends to become bitter rivals. The differences can become intractable where individuals have different opinions on the value of a business, so that one (or more) parties is unwilling to be bought out by the other(s) at a stated value.

There are a number of legal routes available to addressing these deadlocks. However, selecting between them, and including them in a relevant agreement is often the last thing on the minds of three friends setting up their new clinic. Resolving such disputes when the business is flourishing is likely to be far more expensive than agreeing matters at the outset.

If you are considering setting up a new healthcare business, whether on our own or with others, you should ensure that you work out how you will address the issues set out here.