What type of company should our PCN be?
Justin Cumberlege, partner in healthcare specialist law firm Hempsons, explains the options available to PCNs considering becoming a company.
PCN lead practices are concerned about the liability they are carrying with employing so many ARRS staff over which the partners have no, or very little, control. As a result, many have decided that forming a company is a solution to ring-fence the liability.
To what extent incorporating a company is a complete solution is the subject for another article, but in this article we consider the different types of company your PCN might become.
General trading company
Companies come in various shapes and guises. The most common is a general trading company limited by shares, which gives great flexibility through the share ownership. Different numbers of shares can be allotted to shareholders.
It is not uncommon for practices with a greater list size to receive more shares. Shares have to be paid for (or there is at the least a deferred liability to pay for them) so it follows the more shares you have, the more you have to pay. However, in return, you receive more votes and larger dividends.
You may not want some practices to have more votes; in which case you can create two classes of shares: one for votes and the other for capital investment. The ability to create different classes of shares with different rights is another example of the flexibility of a company limited by shares.
Company limited by guarantee
A company limited by guarantee is usually a membership company, which means that there may be no, or little, initial investment, but a membership fee may be paid. For primary healthcare, the disadvantage of a company limited by guarantee is that it cannot hold a GMS contract.
Community interest companies
Either type of company can become a community interest company (CIC). A CIC is set up for the benefit of the community or to pursue a social purpose, rather than primarily to make a profit for shareholders. It has to state what its objects are and when applying for incorporation you need to state how the company is going to benefit the community.
Generally, the provision of healthcare is considered to be such a social benefit. CICs are regulated, meaning that you have to report to the regulator each year how you are fulfilling the CIC’s objectives.
CICs are asset-locked, meaning you cannot distribute more than 35% of the profits. That results in the dividends, and return on any initial investment, being limited. That limitation means that CICs are liked by the public sector, but not external funders, such as banks. The CIC can invest in its own work and in community projects which are within its objects.
Obtaining grants from the NHS or local authorities is generally considered to be easier for a CIC than trading companies.
Once the company is a CIC, it cannot go back to a ‘trading company’ as it is asset-locked. In addition, it may be a problem if it joint ventures with non-asset-locked companies, so it is a step that needs careful consideration. A halfway house is to set up a trading company with restrictions similar to a CIC, which could then be registered as a CIC in the future, or remove the restrictions if they became an obstruction to future development.
First published in GP Business in July 2024.
Contact us
Justin Cumberlege is a partner in our primary care team. If you have any questions about the issues discussed in this article, or need legal advice on any aspect of your GP practice, contact us today.