There are multiple benefits for GP practices in forming Limited Companies – but there are downsides too. So, is it right for your practice? In this Xeinadin guide we explain how to go about it and avoid the pitfalls.
First – what do we mean by ‘incorporation’?
In principle, incorporating your practice means establishing a limited liability company into which you can transfer your business and contracts (including the GMS, PMS and/or APMS). This can protect individuals (be they sole contractors or partners) from business debts becoming personal liabilities, and also establish a more tax efficient operating model. Many practices use this kind of corporate vehicle to develop and evolve.
What is ‘limited liability’?
Simply put – as long as there are no personal guarantees or contracts entered into by individuals – it means that any business liabilities rest with the Limited Company and not its individual owners.
What type of corporate vehicle is best?
The basic options are:
- A company limited by shares
- A company limited by guarantee, or
- A limited liability partnership
However, in most cases the best choice for GP practices is to establish a company limited by shares – primarily because this is the only type of corporate body that is currently suitable to hold a GMS or PMS contract.
For this reason, this guide assumes you will be setting up a company limited by shares.
What governing documents should your company have?
A specially-drafted set of governance documents will be needed to set out how the company will be run and the relationship between the shareholders with the directors and one another. These will be split into a set of Articles which are publicly available at Companies House, and a Shareholders Agreement, which is a private document between the Company and the shareholders.
The governance documents will include (but are not limited to):
- The rights relating to shares (i.e. voting rights, dividend rights and capital rights)
- The structure of the Board and the appointment of directors
- Any restrictions on shareholders
- How shares can and/or will be treated (i.e. whether they can be voluntarily transferred, when a shareholder must transfer them)
Who can hold shares in your company?
This really depends on the type of GP contract you hold – as this will determine the types of bodies or individuals that can hold them.
For instance, a GMS contract can currently only be held by companies limited by shares where:
- At least one share is legally and beneficially owned by a General Medical Practitioner
- Any other share owned by a Medical Practitioner is legally and beneficially owned by a General Medical Practitioner or Medical Practitioner employed within the NHS (e.g. by an NHS Trust or FT), and
- Any other shares not owned by a General Medical Practitioner, or another Medical Practitioner, must be owned by individuals falling within a specified list
Do you really need directors?
In short, yes. Every company must have at least one director to fulfil the various statutory duties and any contractual obligations that fall under service agreements.
Among other obligations, these will include the duty to:
- Promote the success of the company
- Exercise independent judgement
- Exercise reasonable care, skill and diligence, and
- Avoid conflicts of interest
Will all your practice contracts be taken over by the Company?
This will depend on the terms of those contracts, particularly for lease documents. GMS contracts, for example, will require the approval of your Integrated Care Board (ICB), but under staff contracts, your employees will generally (unless they object) transfer under TUPE rules.
Is there a set process or application form for ICB consent?
Yes, there is. An assessment framework has been set up for ICBs by NHS England to make application and consideration more straightforward. You can read it here.
Your ICB has the ultimate power over whether to approve an incorporation and a novation of your GP contract. If your application is approved, they may well insist that you enter into Novation Agreement, and you should give this careful consideration as it may contain guarantees and restrictions that are unworkable or unacceptable to you.
What other factors need to be considered?
Other key factors will include:
- Care Quality Commission: Any regulated activities the company is providing must be registered with CQC, or the company directors could be in breach of a Statutory Offence
- Pensions: The Company will need to secure Employer’s Access to any pension schemes transferred into it by staff members
- Statutory reporting: The directors are obliged annually to file documents detailing:
- Ownership
- Financial accounts
- Share restrictions and directors’ duties surrounding them
- Tax: Differing tax rates and treatments will apply to the company and its shareholders, so it’s vitally important that Directors seek specific tax advice as to how incorporation will directly affect their tax liability.
How Xeinadin can support you with your practice incorporation
If you are considering incorporation, then please do get in touch. We can support you on a range of legal issues that spin out of the process.
We can help you with all aspects of the incorporation process including:
- drafting the shareholders agreement and articles
- reviewing and/or supporting with the application process with the ICB and the negotiation of any Novation Agreement
- advising on whether the non-clinical contracts are capable of novation
- supporting you with the staff consultation process required under TUPE transfer into the corporate vehicle, and
- considering CQC registration requirements
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