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Business Structures for a Chemist or Pharmacy

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The $21.9bn pharmacy and chemist industry continues to grow in Australia. This is because retail pharmacies act as the primary point for prescription and scheduled over-the-counter medication. In 2020, the Australian Government introduced fast-track implementation of electronic prescribing. As a result, as of April 2021, almost 3.5 million ePrescriptions have been given out in pharmacies across Australia. In response to increasing competition in the pharmaceutical industry, many businesses are implementing new business models to compete. 

If you are considering drug retailing or pharmacy retailing, there are several business structuring options available for you to start your own pharmacy or chemist business. To help, this article will explore the partnership and company business structure. 

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Operating Under a Partnership Structure

Many pharmacies and chemists operate under a partnership business model. A partnership involves two or more people carrying on a business together. You may wish to choose a partnership business structure for your business as it will allow you to pool resources, skills and knowledge with other like-minded individuals. 

One of Australia’s most prominent players in this space is ‘My Chemist Retail Group’, trading under Chemist Warehouse and My Chemist. My Chemist Retail Group is composed of various partnerships and alliances between individual pharmacists, illustrating the success of this business model.

Additionally, you will need to draft a partnership agreement that clearly outlines your and your partner’s role and responsibilities in the business. Importantly, each partner will be legally and financially liable for the business. 

Benefits of a Partnership

When working as a partnership, you can rely on one another’s skills to help your business to grow and prosper. Partnerships can also function to offer additional services based on the strengths of the partners, including community health services and preventative care. Consequently, if you know another chemist who is in a similar position to you or even a chain of chemists in this position, this could give you a significant advantage over other business structures available to you. 

Another benefit of a partnership structure is that each partner can get a 50% discount on Capital Gains Tax. Likewise, administration is substantially cheaper as you do not need to file ASIC returns. Additionally, you can deduct any losses from your business against the other income of each partner, thereby providing considerable flexibility than in other business structures.  

Limitations of a Partnership

One of the primary concerns with a partnership business structure is that you will be responsible for all agreements made by other partners during regular business. As such, you should take care when considering whom you choose to enter into a partnership with. Indeed, they will need to be someone you can trust completely. Moreover, partnerships can be challenging and costly to wind up. Hence, you will need to be confident that this is a long-term commitment before entering into a partnership agreement for your business.

Operating as a Sole Trader 

Intensifying competition in the pharmaceutical industry has negatively impacted pharmacy profitability. Many chemists now function as discount pharmacies and traditional full-service stores. Accordingly, many business owners wish to choose a sole trader business structure. This structure is best for those looking to create a local chemist that builds a reputation with the community over time.

Australia’s pharmacy and chemist industry is heavily regulated by rules and regulations. Hence, it is important to ensure that your business will comply with these on an ongoing basis.  

A sole trader is the simplest business structure to choose and is the cheapest option for startup and ongoing costs. When you operate as a sole trader, not only will you have complete ownership of your business, but you will also maintain total control over how it operates. However, the cost for complete control comes in the form of unlimited liability. Unlimited liability means that you will personally be liable for any debts incurred by your pharmacy or chemist business. This is because Australian law does not distinguish between you as an individual and your business. Hence, when your business suffers financial difficulties, so do you. 

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Key Takeaways

There are currently over 5,800 pharmacies operating across Australia. If you are looking to start your own pharmacy or chemist business, it is essential that you carefully consider which business structure is most suitable. Ultimately, you want to choose a structure to support your business goals so that your business can thrive. 

For more information on choosing the best structure for your chemist or pharmacy, contact LegalVision’s experienced business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

How is a sole trade structure different from a partnership?

A sole trader is an ideal business structure if you are planning to operate a chemist on your own. It is the simplest business structure to set up and is the cheapest option considering startup and ongoing costs. Likewise, you gain complete ownership of your business. Conversely, a partnership involves one or more partners working together. The setup process is different and you will need to draft a partnership agreement.

Can I change from a sole trader to a partnership?

Yes, it is possible to change business structures. However, note the legal, commercial and tax consequences of changing from a sole trader to a partnership.

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