Choosing the right business model for your practice
The partnership model is 120 years old – isn’t it time you considered a change? BMA lawyer Shanee Baker takes you through the options
The partnership model is 120 years old – isn't it time you considered a change? BMA lawyer Shanee Baker takes you through the options
The humble GP partnership has been the bedrock of general practice since the Partnership Act of 1890, but this model is being superseded with modern corporate models that offer different benefits.
It may be tempting to create entities from scratch or buy an ‘off-the-shelf' company and make it fit your practice, but this could be a mistake.
Our law firm deals with a worrying number of doctors who have put themselves at significant risk of running into trouble with the taxman or the law, by overlooking the implications of moving to a different business model.
This article will go through the various business models that practices can adopt and provide advice about your legal obligations under each and what you should do with any profits (or losses) made.
Most GPs will be used to operating partnerships under traditional GMS or PMS contracts.
For GPs, the ‘business' is based on a professional relationship and service, so a simple informal arrangement is probably ideal – but it is a good idea for it not to be too informal.
It is best to have an up-to-date partnership agreement in place that is tailored to your practice and in line with your commitments under your GMS or PMS contract.
General commercial partnership agreements are unlikely to be suitable for GPs, as medical partnerships are unique and have to be aligned with the practice agreement that is in place.
The BMA currently offers a tailormade agreement for a flat fee to completion, which has been popular for new agreements and any overhaul of an existing partnership.
The disadvantage of a partnership is that it is not a separate legal entity and therefore partners are liable jointly and severally for the acts of any one partner.
A robust agreement is definitely a must, otherwise these informal, flexible structures can become more of a headache than a help.
Limited liability partnership
Despite the name, this is not technically a partnership – it is a corporate entity consisting of members rather than shareholders and is governed primarily by the Limited Liability Partnership Act 2000.
Members usually have an agreement in place that governs the management of the partnership and sets out any additional rights. The advantage of an LLP is that it is
a separate legal entity and therefore the liability of each of the members is limited and is unaffected by any changes on membership. This effectively means that one member's actions do not bind another member and a member can also become another corporate entity as well as an individual.
LLPs are less formal in terms of structure and management than a company. There is no limit on the number of members and the whole incorporation process is much simpler, although a lengthy private LLP agreement will normally be required setting out the rules of operation and management.
The agreement is private and does not have to be disclosed to the Companies Registrar. One major disadvantage, however, is that at present an LLP is not accepted as a vehicle for delivery of primary medical services under GMS or PMS, and if it is used as a vehicle for APMS, any income generated may not be pensionable under the NHS.
Company limited by way of shares or guarantee
This is a more formal arrangement, with some benefits, but beware there are strict rules on how you invest your profits.
Essentially, a ‘company limited by way of shares' can only be used for profit-making activities, whereas a ‘company limited by way of guarantee' is usually the best option where the activity is non-profit making, although there are no restrictions on profit making.
Both entities require articles of association – the document that sets out how the company is to be managed and how affairs should be conducted. This includes elections, disqualifications and sets out the objects clauses.
For both types of entity, members and directors carry limited liability. In the case of a company limited by shares, liability is limited to amount of share capital of the company and for a company limited by guarantee, liability is limited to the amount that is guaranteed by its members upon winding up – usually £1.
One important consideration is what you intend to do with any profit or surplus from the company. This requires careful thought, especially from a tax perspective.
Cash cannot usually be taken from one entity and merely applied for the good of another without some form of tax or other irritating legal rule applying, no matter how philanthropic the doctors feel. Rule of thumb: take advice from your accountant.
Community interest company or social enterprise company
This type of ‘company' is becoming more popular and may be a good middle ground for GPs looking for a kinder corporate structure.
A community interest or social enterprise company requires a company structure (as described above) and you will have to pay to register the entity, but any profit from this type of company can be reinvested back into a type of defined community or social benefit.
The objects of the company are tight and constrained, and anyone entering into this structure should always be aware of penalties that can be imposed by the regulator should the activity fall outside that which is agreed at inception. If the company is limited by way of shares, then shareholder dividend will also be subject to a cap. There are also none of the advantages of a charity in terms of leniency on tax.
For all these entities, GPs should be aware that tax, VAT, employment law and corporate law, as well as the rule around the delivery of certain medical services, all apply in one form or another. As such, GPs are strongly advised to take professional advice on all aspects at the outset.
Shanee Baker is a lawyer at the BMAWhich business model is right for you?