Understanding PCN incorporation
When we refer to the “incorporation” of PCNs what we are effectively referring to is the creation of a separate company/provider arm which is owned by but distinct to the members of the PCN. Its purpose is to support with the functions of the PCN – and it is fast becoming one of the top requests for support we receive.
Options for incorporation
As with most decisions, there are options to consider when deciding what type of vehicle to use to create your company/provider arm – and choosing the right one for your PCN is important as there are advantages and disadvantages to factor in.
Broadly, there are three incorporated options available to PCNs that afford limited liability to the member practices, who will own and run the business, namely:
- Limited Liability Partnerships
- Companies Limited by Guarantee
- Companies Limited by Shares
The above aside, we are commonly asked whether a PCN should incorporate as a Community Interest Company (CIC) but what are they and what do they mean?
A company limited by shares or guarantee can operate as a CIC. They are companies set up as social enterprises where there is an emphasis on using profits and assets for the public good. A CIC has the specific aim of providing a benefit to a community and must use its income, assets and profits for the community it is formed to serve. The primary purpose of a CIC is to benefit the community and not its shareholders, directors or employees. With this in mind, as a type of incorporated vehicle, it is subject to various statutory restrictions which include an asset lock (meaning its assets cannot be sold for a sum below their market value) and a maximum aggregate dividend cap (meaning, currently, no more than 35% of distributable profits may be declared in dividends in any given year). In addition, it is overseen by a specific (albeit relatively light touch) regulator that ensures that the company continues to satisfy the criteria for being a CIC (i.e. that it satisfies the so called “community interest test”).
But what’s the preferred option?
In our experience, we generally end up focusing on the third option (Companies Limited by Shares) for the specific reason of flexibility when it comes to potential future activities of the PCNs corporate vehicle.
In particular, the current position under the PMS and GMS Regulations are that GMS/PMS contracts can only be held by individuals, partnerships (not Limited Liability Partnerships) or Companies Limited by Shares. Given this fact, most that have considered the creation of a provider arm as a Limited Company have adopted a Company Limited by Shares in recognition that it could be a vehicle through which a GMS/ PMS is ultimately held. For example, if a practice in the group were to cease, then the vehicle could be used to take over its business/ functions in a manner so as to ensure the stability of all other members of the PCN.
Pros and cons of incorporation by a company limited by shares?
Whilst incorporation is undoubtedly the most recent phenomenon due to the various benefits it can provide, it is important to consider both the pros and cons for pursuing this path. Core to those are:
- it has limited liability
- it is a separate entity capable of entering into its own contracts (whether that is staff contracts, commissioned services, sub-contracts or otherwise)
- it could be a vehicle that front contracts and liabilities when it comes to PCN related activities
- it could be a useful link between the practices/general practice and the emerging parts of your Integrated Care Board
- if the company is set up to satisfy certain conditions it can operate as a Cost Share Group, which would allow otherwise VATable supplies between members of the group to be VAT exempt
- the set up costs and fees
- the ongoing administration (including maintenance of company books, the need for annual returns and accounts, potentially payroll etc)
- less privacy (in the sense that accounts / returns are publicly available)
- the need for directors that have codified statutory duties
- the handling of shares (both where member practices leave or join and in connection with shares being held on trust for partners)
- depending on whether it employs staff and carries out regulated activities the need to secure access to the NHS pension scheme and to register as a registered provider with the Care Quality Commission
Supporting your PCN with incorporation
Once the PCN vehicle for incorporation has been chosen, there are a number of other legal issues to consider from drafting the shareholders agreement and articles to reviewing and amending the Network Agreement and/or creating a Sub Contract in order to document the terms upon which the provider arm will support the PCN and its members, to consulting staff as some may TUPE transfer into the corporate vehicle and considering CQC registration requirements of your provider arm.
Do get in touch with us if you would like support with incorporation of your PCN company or any of the issues discussed here.