What type of company should our PCN be?
First published in Practice Management in January 2021
Justin Cumberlege provides some guidance on the type of company you may want for your primary care network and whether a community interest company might be right for you.
As companies evolve, they may need to change their structures, but some changes are not possible, so starting out in the right direction is important.
Companies come in various shapes and guises. The most common is a general trading company limited by shares, which gives great flexibility through the share ownership. Different numbers of shares can be allotted to shareholders. It is not uncommon for practices with a greater list size to receive more shares. Shares have to be paid for (or there is at the least a deferred liability to pay for them) so it follows the more shares you have, the more you have to pay. However, in return, you receive more votes and larger dividends.
You may not want some practices to have more votes; in which case you can create two classes of shares: one for votes and the other for capital investment. The ability to create different classes of shares with different rights is another example of the flexibility of a company limited by shares.
A company limited by guarantee is usually a membership company, which means that there may be no, or little, initial investment, but a membership fee may be paid. For primary healthcare the disadvantage of a company limited by guarantee is that it cannot hold a GMS contract.
Either type of company can become a community interest company (CIC). A CIC is set up for the benefit of the community or with a view to pursuing a social purpose, rather than primarily to make a profit for shareholders. It has to state what its objects are and when applying for incorporation you need to state how the company is going to benefit the community. Generally, the provision of healthcare is considered to be such a social benefit. CICs are regulated, meaning that you have to report to the regulator each year how you are fulfilling the CIC’s objectives.
CICs are asset locked, meaning you cannot distribute more than 35% of the profits. That means your dividends, and return on any initial investment, is going to be limited. That limitation means that CICs are liked by the public sector. The CIC is able to invest in itsown work and in community projects which are within its objects.
Obtaining grants from the NHS or local authorities is generally easier for a CIC than trading companies.
Once the company is a CIC, it cannot go back to a ‘trading company’, so it is a step which needs careful consideration. A half-way house is to set up a trading company with restrictions similar to a CIC, which could be changed in the future.