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Business Development - Federating with other practices

Compare the different ways to set up a provider organisation with GP colleagues, says Ian Hempseed.

In a previous article I detailed the pros and cons of the different types of company that practices federating to provide healthcare services can choose between.

Here are the main features of five other options for the structure of a provider federation, together with their advantages and disadvantages.

The information below and in last week's article is intended as a compare-and-contrast guide. The legislation governing the different types of organisation is complex, and practice groups should get legal and tax advice before deciding which vehicle is best for them.

An outline understanding should however, help fledging federation member practices to have meaningful preliminary discussions about which options are more likely to suit them.

Distribution of profits
For example, do you want to be able to distribute all or some of the profits from providing services to member practices? A company limited by shares or a community interest company limited by shares would be worth looking into further.

If you want all the profits to be reinvested in healthcare provision then exploring setting up a co-operative or an industrial and provident society could go on the agenda.

 
Charity

Key features

A charity must exist for exclusively charitable purposes and the public benefit. It must register with the Charity Commission. It can only trade to delivery its charitable objects. Charities are commonly set up as companies limited by guarantee (see last week's article here GP provider federations).

 

Pros

  • Exempt from tax on trading profits.
  • Eligible for stamp duty land tax and business rates reliefs.
  • Can obtain top-up funding through Gift Aid.
  • Profits are re-invested for its charitable objects.

Cons

  • Higher level regulation by Charity Commission including additional reporting requirements.
  • Cannot raise equity finance.
  • No distribution of profits.
  • Board of directors is generally unpaid.
  • Subject to two-tier governance: board of trustees and separate senior management team.
  • Not eligible as an employing authority to access the NHS Pension Scheme (except possibly as an out-of-hours provider).

 

 Co-operative

Key features
Co-operatives are run for the benefit of their members rather than for the wider community. They can be set up as an IPS or a company limited by guarantee or by shares (see last week's article for their key features and pros and cons).

 

There is no specific legislation for co-operatives but they follow key guiding principles - for example, voluntary and open membership, democratic control by one member one vote and independence.

 

Limited liability partnership (llp)

Key features
LLPs are corporate bodies separate from their members.

 

Liabilities of the LLP are normally borne by the LLP.

 

Members are both owners and the equivalent of directors.

 

Pros

  • Flexible governance arrangements.
  • Profits generally taxed as if an ordinary partnership.
  • Distribution of profits.
  • Share in enhanced capital value.

Cons

  • Not eligible as an employing authority to access NHS Pension Scheme.
  • Not recognised as a social enterprise.

 

Partnership

Key features
A partnership is not a legal entity. Partners are jointly and severally liable without limit for the partnership's debts and are the owners and managers of the business.

 

Pros

  • Very familiar form for GPs.
  • Flexible governance arrangements.
  • Distribution of profits.
  • Avoids filing and registration requirements of companies, industrial and provident societies and limited liability partnerships.
  • May be eligible as an employing authority to access NHS Pension Scheme.

Cons

  • Unlimited liability of partners.
  • Not recognised as a social enterprise.


Industrial and provident society

Key features
This is a corporate body separate from its shareholders and directors. An industrial and provident society (IPS) is responsible for its debts and can be registered either as a co-operative or for the benefit of the community (Bencomm). Shareholders entrust strategy and management to the directors.

 

Pros

  • Shareholders' limited liability.
  • Can raise equity finance.
  • Is exempt from some Financial Services Authority promotion rules for public offers of shares.
  • Able to distribute or reinvest profits.
  • Can badge itself as social enterprise.
  • A Bencomm, which is not a charity, can opt for a statutory dedication of its asset permanently for community use.

Cons

  • Outdated legislation.
  • Caps on the size of certain types of investment it can hold.
  • Not eligible as an employing authority to access the NHS Pension Scheme (except possibly as an out-of-hours provider).
  • Ian Hempseed is a partner at specialist medical solicitors, Hempsons, www.hempsons.co.uk

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