Are Limited Companies The Way Forward For GP Practices?
In one of his last acts before resigning and triggering the series of events leading up to Boris Johnson’s resignation, then-Health Secretary Sajid Javid spoke at the NHS ConfedExpo 2022 in Liverpool. He told delegates the current primary care model of general practice is not working, and he promised a plan for change.
How that will manifest itself in these turbulent political times remains to be seen, but his comments sparked a thought in my mind about a potential tweak to the existing model that might actually work a lot better – is it time for a more modern structure for GP Practice in the shape of a company limited by shares?
A model for GPs who don’t want to be partners
This isn’t a new idea, and it has been explored a few times already but very rarely applied. It’s a model commonly used in dentistry, and I believe now might be the right time for general practice to take another look.
There’s a number of benefits, the most obvious one being the removal of the joint and several liability that comes with being a partner in a partnership to a model where the liability is limited to the company. A limited company could potentially facilitate GPs leaving or joining a practice because you can restructure the shareholding to enable that and could also allow for shares to be held by other members of the NHS family.
It might also be a good way to attract GPs that don’t want to be partners. A lot of young GPs coming through don’t want that responsibility, but being a shareholder and a director with limited liability might be a welcome model.
The restrictions in the GMS and PMS Regulations mean that you can’t sell the goodwill regardless of what structure you adopt and this is unlikely to change. However, if you take on additional services that sit outside the core GMS contract and run these through a separate company and potentially build some goodwill in it by running a range of services then that could be sold on. There may be some restrictions around that, but we could look at that as we go on.
The key point is that a company limited by shares already meets the rules set out in the GMS and PMS Regulations provided that the shares are held as prescribed in those Regulations.
A move away from the partnership agreement
Setting up a company and its operation is all governed by the Companies Act. From the perspective of how it operates, the shareholders own the company, while its directors operate under a statutory duty to act in the best interests of the company and all shareholders equally.
The employees work inside that model, and if practices did adopt it, TUPE rules would apply, and all staff would transfer into the new entity.
Companies are governed by their articles of association and the articles would replace the existing partnership agreement, which is a private document between the partners. In my opinion, a shareholder agreement would also be needed because the articles of association are a public document, and you might not want to put everything on public display.
There would be things you would want to keep among the shareholders, as has happened in the primary care networks that I incorporate and the GP federations that I’ve worked alongside lawyers to incorporate.
The key benefit is that the company is a legal entity in its own right. That means shareholders are not liable for the debts of the company. The limit of liability is the amount you purchase in shares and can easily be managed to a low level. And it can bring
to an end that joint and several liability currently present under the partnerships – one of the things that puts people off coming into it.
Get the commissioner on your side
Practices do not have an automatic right to incorporate and transfer their GMS or PMS contracts to a new company and commissioner co-operation and consent is required. Clearly, there’s a lot of work to be done to accomplish this, and the first step would be to get the commissioner on board early. There is a commissioner assessment framework to complete, which is assessed on a RAG rating and either approved or rejected based on that rating.
With practices toppling over on an almost weekly basis, getting the commissioners on board will hopefully start to become easier.
Updates to this process were made last year to make it easier for practices to follow it, but there is work to do around the novation of the contract from the partners into the company and other issues to address, including premises, staff, pensions, and tax implications.
The pros and cons of a new model
In terms of downsides, company articles and accounts are public documents, so people can go to Companies House and see the initial cost of the set-up and details of the control of the company. Companies House regulations dictate that companies have to have articles of association as they are the rulebook for the governance for how the company is going to function. The board of directors also has to operate in accordance with the articles.
As a shareholder or director you may not be able to avoid personal liability altogether in the new structure as you may be required to give personal guarantees to your bank and/or the landlord of your practice premises. It’s possible these could be removed over time. Commissioners may also require the partners to guarantee the performance by the company of its obligations under its GMS of PMS contract if they allow it to be novated to the new company.
On the upside, the biggest benefit is the loss of the several and joint liability for any claims against the partnership, such as employment claims, and, as mentioned, the possible eventual loss of personal guarantees. A more flexible structure should also help attract and retain young GPs and hopefully future proof your practice.
Strong governance structures
Another big benefit is the strong governance structures. Company law is an excellent model with a solution for almost every problem you could come up.
With sound specialist advice, there may be tax benefits too. There’s certainly less risk if there’s a fall-out among partners. That can be really challenging under partnership models, but this would put tighter controls around how people leave.
The biggest benefit of all is simply that this model will be more attractive to young GPs coming in than the current partnership model.
So I just wonder if now might be the time for people to think about it. I am being asked for this now and am starting to advise a number of practices on it. I’m not a lawyer, so I always bring in the legal advice when it’s appropriate, but I can help develop a structure before we need to draft in the lawyers.
Scott McKenzie is an NHS Management consultant helping GPs, PCNs, and GP federations generate £millions and improve patient outcomes by developing sustainable general practice. If you want to improve the way your practice operates, schedule a call today.