Incorporating your GP practice? Put the deal in the documents
A recent High Court decision is a useful reminder that understandings reached before a company exists will not bind the company once it has been incorporated.
If you are thinking about incorporating your practice, merging into a new corporate vehicle, or creating a PCN company, the key point to remember is that if a term matters, it needs to be written into the documents that create and govern the new structure.
Key takeaway
Promises made in principle before incorporation — including about remuneration, profit shares or other entitlements which may fall under the category of “what we all agreed” — are unlikely to bind the new company unless they are carried through into the legal documentation.
Facts of the case
In the case of Stuart William Evans, Michael John Walters, John Arthur Wood v JNP Group Consulting Engineers Limited [2026], two limited liability partnerships merged into a single company at the end of 2016. The members exchanged their businesses for shares, the money in their capital accounts became directors’ loan accounts, and everyone signed a shareholders’ agreement. The new company underperformed, so no dividends were declared on one group’s shares, and all three claimants retired in 2018.
They argued that they had been promised a set level of pay, agreed at a meeting before the merger. His Honour Judge Charman found that a meeting had agreed a method for calculating pay but had not guaranteed a figure. In his words: “neither a cap nor a floor” had been agreed, and the judge found that the new company was not bound by this agreement.
He stated, “It is axiomatic that the Company cannot have entered into a binding contract before it was incorporated because at that time it did not exist.” He referenced section 51 of the Companies Act confirming the statutory basis for this principle.
What this means for GP practice or PCN incorporation
Do not assume that heads of terms, meeting notes, emails or informal assurances pre-dating the company will govern the new company. They may be useful evidence of discussions and intentions, but they are unlikely to be binding on the new company. Remember that the directors of the company are obliged to act in the best interests of the company once it is formed, which may not be to fulfil promises made by the founders of the company before it was formed.
Before completing the incorporation, check that the documents deal expressly with any promised remuneration, drawings, profit share, loan account treatment, share rights and exit expectations. If the bargain depends on it, it should be stated clearly in a shareholders’ agreement or joint venture agreement, or equivalent contractual documents of which the company will become a party following incorporation.
It is important to note that these agreements may still be binding on the individuals if a contractual agreement was made (which could be verbal or through emails or similar), if there was a subsequent failure to implement the changes or honour the arrangements agreed, but the company itself would not be a party. However, this additional level of complexity is avoidable if the appropriate action is taken upon incorporation.
Contact us
GP practice incorporations and sometimes PCN incorporations are complex procedures, and this case is a timely reminder of the risks involved if the process is not managed appropriately. Our specialist primary care team can advise you on the procedures to follow and will ensure that the steps taken will result in the final company meeting the expectations you set during the planning stages.