To be or not to be – a member of an LLP

There is a developing trend in the world of Primary Healthcare that “bigger is better”.  This is perceived to be the case for a number of different reasons, including perceptions concerning the safeguarding of the business from unwelcome predators, the sharing of staff across a wider patch and perhaps (regarded as the least important in the present marketplace) the ability to “brand” the business.

A similar concept is now being seen within the world of private healthcare – although for completely different reasons – and we are witnessing an increasing number of Consultants grouping together in “Partnerships” to deal with the private aspects of their practices.  Whilst it might be easy to assume a synergy between these and NHS Primary Care partnerships, the underlying reasons are usually entirely different – and it is essential not to presume that “bigger is necessarily better” or that “one size fits all” within the Consultants’ world which is a radically different marketplace.

Rather than being in a position of needing to fend off unwelcome competition from other parts of the Private Sector, many Consultants are so established within their speciality that this is not a significant risk.  Because of their degree of specialism, there is likely to be far less opportunity to move staff around, let alone to provide cover for each other at a senior level.  And what is of least significance to GPs, may be of the greatest significance to Consultants – namely the ability to adopt a “brand”.  Specialist Accountants have suggested that merely by banding together under an umbrella name can increase their combined “value” by as much as 15%.

On this basis of this latter point alone, it may be perceived there are very positive reasons for agreeing to “group together”.  However, it is not always the Consultants themselves who are promoting this concept – and increasingly, it is the organisations for whom they provide the services who are behind it.
You might ask yourself, why an FT would trouble itself to assist its Consultants into improving their value – but the reason very often has nothing to do with the Consultants’ position and everything to do with the Trust’s.  The essential point behind this is that it is far easier for the Trust (or other private healthcare organisation) to deal with one “corporate entity” than to have to deal with a disparate band of Consultants who are each “doing their own thing”.

However, before jumping on the band wagon and agreeing to “follow suit” it is crucial to appreciate the significance of doing so.  The usual “corporate entity” which is adopted for these purposes is a Limited Liability Partnership.  This is a mid-way between a traditional Partnership and a Limited Company.  It was originally promulgated by City firms of Partners with global offices, who wanted to find a mechanism for limiting an individual Partner’s liability for the negligence of an unknown Partner on the far side of the world, whilst at the same time retaining what (certainly at that stage) was regarded as the benefit of the Partnership tax structure – and the Limited Liability Partnership Act 2000 was the result.  Unlike a traditional partnership, it is a corporate structure with its own “legal personality” – and as such, two “designated members” are required to file the application for formation (similar to the two Directors/Director and Company Secretary required to establish a new Limited Company).

But this not simply a wrapper to which the Consultant members may attach themselves in name alone.  It is the beginning of a new relationship for those who sign themselves up as Members – where the values and principles of partnership are likely to be more immediately relevant than the pure corporate structure.
From the Trust’s perspective, it makes life considerably more straightforward as it can simply enter into one Service Level Agreement with the LLP and be done with it.  It is then up to the LLP to ensure it provides the level of service delivery required.  Inevitably, this necessitates each and every Member of the LLP to play his/her part – and the entity may therefore be regarded as being as strong only as its weakest Member.  Over and above this however, there are a raft of other issues to consider, of which the following are just a few examples.

  1. Whilst the legalities attached to setting up the corporate entity are relatively straightforward, it should be noted that the two Designated Members are required to file their home addresses at Companies House, making them available for inspection.
  2. The LLP “wrapper” having been set up, it is essential the Members should enter into a formal agreement which sets out the basis of their relationship with each other.  Without this, one can only fall back on the default rules which would be wholly inadequate to cater for the relationship of Consultants working within a healthcare environment.
    The amount of time required to cater for this, should not be underestimated and you can pretty much guarantee it will be more complex than you had anticipated!
  3. In addition to the Members’ Agreement, there will be the Service Level Agreement to consider which will be entered into between the LLP and the Trust/private organisation.
    This is all bound to necessitate legal advice and it should be appreciated costs will be incurred.
  4. It will be necessary to have a joint partnership bank account into which all funds must be channelled.  The Members will need to agree the basis upon which “drawings” may be made from this account which might in practice restrict the ability of Members who are used to having rather more freedom as individuals to draw down at a time of their choosing.
  5. Inevitably, the LLP will not run itself!  Even after the initial steps have been taken to set it up, there will be ongoing decisions to take and it will be important to establish a method of taking this forward.  Either the Members should agree to delegate all responsibility to a Management Board on which only a few of the Members sit (and be prepared to be bound by their decisions!) or alternatively, each Member should expect to attend regular meetings.
  6. Because the LLP has its own corporate entity, it is required each year to file its own Tax Return. By the same token, LLP Accounts will be required.  Inevitably, this will necessitate annual meetings with accountants – and costs will be incurred.
  7. It goes without saying that the Members will have to agree the basis of distribution of profit shares (i.e. the ultimate earnings of each Consultant Member – as opposed to the drawings which he/she may be entitled to take on an interim basis).  To the extent each individual works in isolation to the others, this may be relatively simple to resolve on an “eat what you kill basis”.  However, to the extent there is any degree of overlap, or where “referrals” are taken into account, a system for recognising this will have to be put in place – and honoured!
  8. The LLP will need to employ staff to carry out the day to day duties associated with the running of the business.  Some Members may feel they derive less benefit from the tasks undertaken by these staff than others.  It is likely to be very different from a regime where each Consultant has a PA accountable solely to himself!  Once again, this is not impossible to resolve, but it does mean a degree of tolerance will need to be adopted.
  9. Following on from this, it is also important to appreciate that proper policies will need to be put in place relating to the employment of staff and the procedures to be adopted in the course of their employment.  It is particularly important to recognise that if a grievance is raised, this would not be “contained” between “the boss and his PA” and would have to follow due process.  If this were to result in a claim for unfair dismissal or (worse still) discrimination (for which there is no upper limit of damages) it would be a claim made against the LLP as a whole.
  10. As individuals, Consultants would not generally carry responsibility for each other’s actions or omissions.  However, there are exceptional circumstances in which members of an LLP can indeed be jointly and severally liable – and that is where there is evidence to support the fact they have effectively both been involved in the same “activity”.  It may be thought that this is not very different from any current arrangements – but there is a subtle distinction between the liability of Members acting jointly through an LLP, compared with Consultants working alongside each other under individual contracts.
  11. Following on from this, it would certainly be essential for the LLP to ensure Professional Indemnity Insurance is taken out for the Members as a group – and once again, the cost of this is likely to be determined upon the claims history of the group as a whole.
  12. Rules governing the departure of a Member will have to be agreed, including the thorny issue of whether this should attract the payment of goodwill – and whether any form of restrictive covenant should apply.  Similarly, rules will have to be agreed concerning the desire to admit a new Member.
  13. And there will be costs associated with all of this: legal costs to set up the LLP and Members’ Agreement, together with any subsequent changes – and annual accountancy fees.

This highlights just some of the issues to be considered – and hopefully resolved – in the course of setting up an LLP.  There is no reason why these should not be resolved successfully as long as each and every individual Member approaches it with his/her eyes wide open and with a desire to “make it work”.  Those who are looking for issues to challenge will be bound to find them and there may be little point in prolonging the agony with those individuals – another issue to resolve if they happen to be the “key players” required to make the LLP work successfully.

Above all, before embarking on this process, it might be wise to consider what you as an individual stand to gain overall before volunteering to put yourself on this particular track! Assuming a degree of co-operation all-round however, there may be no reason why you should not reach the end of your journey successfully.