These summaries will give GPs or practices intending to set up a provider body food for thought about what form of legal entity your organisation should take. But before choosing, it is essential to take some local soundings.
In its recent document, 'The Nuts and Bolts of Primary Care Provision', the NHS Alliance suggests liaising with the PCO to find out what services it is most interested in commissioning and whether it will welcome contract bids. Also important is meeting all local GPs or groups that could potentially join the organisation to discuss your plans.
Try to ascertain whether competing providers are likely to emerge, and inform bodies that might be affected by your plans, such as the local authority. Next, choose your organisation type, set up a steering group and plan the myriad things needed to get up and running.
COMPANY LIMITED BY GUARANTEE
Used primarily for non-profit organisations requiring corporate status. It could be used as a non-profit-making subsidiary of a larger group.
- No share capital, members undertake to contribute a nominal amount towards winding up the company if it fails.
- Members elect the directors.
- It cannot distribute company assets or pay dividends.
- Successfully applying for mutual trading status will ensure none of its activities are liable to taxation.
- It can become a registered charity, but treating private patients could jeopardise this.
- Members can resign at any time, so there is flexibility.
SOLICITOR LYNNE ABBESS (LA): It is a frequently used corporate form offering limited liability for larger social enterprise organisations. There are financial reporting costs and accounts will be public.
ACCOUNTANT LAURENCE SLAVIN (LS): It is suitable if the objective is not to profit, but to accrue gains to fund future services. Annual costs from £1,500.
A bona fide co-operative is a type of industrial and provident society - see 'community benefit society' for a full definition.
- Profits are returned to its members, who run the organisation democratically in accordance with certain principles including voluntary and open membership, financial participation by members, autonomy, independence and concern for the community.
- Members can be both co-operative employees and use its services (as with GPs' out-of-hours co-operatives).
- Profits must be distributed only to members or reused within the organisation. Members can decide how profits are allocated.
- Co-ops often obtain mutual trading exemption from the tax authorities.
- A limited-liability body needing a hands-on approach. Difficult to manage if it expands.
- Has limited constitutional flexibility. Closely regulated by the FSA.
LA: Used by GPs in the past, but best suited to smaller organisations and might have difficulty raising finance when trying to compete with larger organisations.
LS: Co-ops are also suitable if the objective is not to profit, but to accrue gains to fund future services. Annual costs are from £750.
COMMUNITY INTEREST COMPANY
This is a new type of company that is particularly relevant to social enterprises. A CIC bridges the gap between not-for-profit bodies and registered charities.
- Can be either a company limited by shares or a company limited by guarantee.
- CIC status imposes an 'asset lock' on the company so it cannot dispose of its assets.
- A CIC can issue shares that pay a restricted dividend.
- Adopt a constitution and satisfy a community interest test that must be approved by a registrar. Must produce an annual community interest report. Accounts are public.
- It is doubtful if a CIC can pass this test if services are not solely for NHS patients. Getting around this might be possible by setting up a separate trading company.
LA: CIC status clearly identifies a company as being for the public good, but offers no tax advantages and cannot be a registered charity.
LS: It is really for GPs wanting limited liability and a company structure, but who want the organisation to be for the good of the community rather than private gain. Costs similar to those of companies.
This model is borrowed from the barrister's profession. A chamber can be a partnership of individuals employing staff and running the chamber, or a company limited by shares or a limited-liability partnership.
- In contrast with the traditional GP partnership, doctors' chambers retain the common workplace approach, but members operate primarily as individuals.
- The chamber receives the instruction for work that is passed out to the members who earn their own individual revenues and contribute towards staff and running costs.
- A chamber can provide a broad spread of specialties between its member doctors, who need not be GPs.
LA: Requires a high degree of independence and flexibility that could appeal when providing new services, but would require a good support team.
LS: Unlikely to be any tax exemptions for such a structure. Annual costs from £1,000 if the chamber is a partnership; from £1,500 if a limited-liability partnership or company.
COMPANY LIMITED BY SHARES
The conventional business model; typically formed to generate profits for shareholders. It can be set up quickly and cheaply.
- Shares are owned by the members (shareholders). Directors recommend a dividend rate, are salaried and appointed by the members who appoint the directors.
- The company pays corporation tax on profits starting at 19 per cent and up to 30 per cent.
- Members can elect to change a company's focus away from profit-making.
- In the GP provider context, company employees would probably have access to the NHS pension scheme.
LA: It is well understood in the commercial world, but has overheads in terms of financial reporting. Accounts are public.
LS: Annual costs are from £1,500. Unless GPs are specifically intending a partnership with the community, or not to make a profit, this and a limited-liability partnership are the most appropriate vehicles.
This has similarities to a limited company including its own legal personality and limited liability. The liability of a limited-liability partnership (LLP) is limited to the amount of money its owners (the partners) invest in it and any personal guarantees they give.
- The main advantage is limited liability.
- Accounts are public.
- Reduced opportunities for tax planning compared to a company limited by shares.
LA: Compared to a traditional partnership (for which GPs can buy full-indemnity protection at relatively low cost) a LLP means loss of flexibility and making accounts public. NHS regulations do not explicitly permit its use.
LS: Annual costs from £1,500. LLPs and companies limited by shares are the most appropriate models for GPs not intending a non-profit partnership with the community.
COMMUNITY BENEFIT SOCIETY
A type of incorporated industrial and provident society - a legal entity for a trading business without share capital, including various forms of co-operative, mutual investment companies, friendly societies and housing associations.
- Run and managed by members on a one-member-one-vote basis.
- Profits are distributed to the wider community (not to members or external shareholders).
- It offers limited liability for losses.
- Can be treated as a tax-exempt charity, but this is unlikely to be compatible with treating private patients.
- Has a rigid constitution and is closely regulated by the Financial Services Authority (FSA).
LA: In social terms, this model is acceptable, but it would restrict commercial freedom.
LS: It is difficult to see how this can offer much to GPs. Annual accountancy and statutory costs are from £500.