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What are the key defining factors and principal benefits of a corporate entity?

  • It is a separate legal entity in its own right, so can enter into contracts, employ staff, be liable for its debts and obligations, etc. The result is that the risks from those contracts, claims from its staff, etc are sheltered in the entity and kept away from the partnerships of the GP practices and other providers in the cluster.  It is a separate entity to the cluster.
  • The members benefit from having limited liability. Except for paying for their shares/membership in the entity (typically a nominal sum), the members or shareholders have no liability or responsibility for the debts and liabilities incurred by the entity.
  • Corporate entities provide a good corporate governance framework as they are governed by statute, for example there are statutory duties that the directors of a company must comply with.
  • Decision making, which is usually delegated to a board of directors is quick and efficient
  • It provides great flexibility as changes can be made (admission of members, changes in directors, amendments to the constitution, etc) quickly and easily
  • If structured correctly, a company limited by shares can hold a GMS contract (a company limited by guarantee (CLG) cannot hold a GMS contract) but an APMS Agreement can be held by any corporate entity
  • The use of a corporate entity is taxed differently to partnerships and may present some tax efficiencies.

What are the drawbacks?

  • There is a cost to establishing and maintaining a corporate entity (although these are likely to be marginal)
  • There is a statutory framework to be complied with, which include the Companies Act and the Insolvency Act
  • Corporate entities are required to publish basic information, including a requirement to submit accounts and an annual return to Companies House each year
  • Community Interest Companies also need to submit a report to the Community Interest Regulator, via Companies House each year.

So, for the integration of services the use of a corporate entity provides a focal point for its members, acts as a shield to keep liabilities from its members, avoids duplication, streamlines decision making and brings the benefits of scale working.

This can operate at multiple levels in an area:

  • Service providers: A group of service providers within a cluster, or multiple clusters, can establish a corporate entity for provider specific needs.
  • Primary care: a corporate entity can provide an entity around which all of the providers within the primary care umbrella (GP, dental, optometry and pharmacy, community nursing, mental health, social care, etc) can coalesce and be represented
  • Geographical: it can be based to integrate all of the providers in a geographical setting, such as a Health Board or Local Authority area

This sounds incredibly complex but is really quite simple as integration can be achieved in only one of two ways:

  • Integrated working without using a corporate entity (contractual integration):  a collaborative approach where providers within each provider group, cluster, etc agree the terms upon which they will deliver an integrated care solution and record those terms in an agreement between them. In this case, one or more of the providers, or the health board, will need to enter into contracts, employ staff, etc on behalf of the others. 
  • Integration working within a corporate entity (corporate integration): a corporate entity is formed, which is a separate legal entity in its own right so it can enter into contracts, employ staff, etc. The members of the group (GP practices, wider primary care, voluntary sector, social care providers, etc) collectively own the entity but appoint directors to make decisions and generally manage the entity on their behalf.  It is envisaged that cluster delivery vehicles will be the mechanisms for the delivery of those services which the PCPG decides are best delivered for particular needs or across the whole cluster population.

So, as risk and liability from integrated working increases, the participants may move informal arrangements on to a contractual basis but, eventually, the level of risk and liability rise to the point where the use of a corporate entity for the benefits of securing limited liability and sheltering that risk from the members becomes essential.

Generally, where multiple parties are involved in delivery of services, a corporate entity is more efficient and streamlined.

However, it is also a flexible vehicle as changes can be made relatively quickly as integration develops and new providers need to engage. For example, a corporate entity, that consists of a group of GP practices within a cluster could easily add further practices to its membership or add groups from other service providers (pharmacy, community nursing, mental health, etc) as integration develops over time.

The cluster delivery vehicle is a provider entity, is separate to the cluster and it is not essential that all practices or all providers within the cluster be members.

What is the difference between members and directors?

In simple terms, the members own the corporate entity, and the directors manage it on a day to day basis on behalf of the members.  

As noted above, members generally have no liability or responsibility for the entity and their role is to appoint and remove the directors and vote on any matters that have not been delegated to the directors (for example to approve the Articles of Association and any changes to it).

By contrast, the role of the director is more complex and carries with it certain responsibilities and potential personal liability. The directors should be safeguarding the future of the entity, looking ahead to the next one to five years and steering it in the right direction to ensure its success and continuation but in line with the objectives set by the members.

In doing this, the directors have to comply with the requirements of several Acts, including in particular the statutory duties of directors in the Companies Act 2006, which are:

  • to promote the success of the company for the benefit of the members as a whole (section 172)
  • to act within powers (section 171)
  • to exercise independent judgment (section 173)
  • to exercise reasonable care, skill and diligence (section 174)
  • to avoid conflicts of interest (section 175):
  • not to accept benefits from third parties (section 176):
  • to declare interest in proposed transaction or arrangement with the company (section 177)

Further guidance on these duties and liabilities can be found here

As a result, directors can face personal liability if they breach these and any other statutory duties and responsibilities. Accordingly, it is not a position to be accepted lightly. Furthermore, the members should consider carefully who to appoint as directors.

At one end of the spectrum all of the members can also be appointed as directors (provided there are not too many members) and, at the other, a completely independent board of professional directors can be appointed.

For cluster entities, these are likely to reflect and represent the membership to some degree, but the focus should be on selecting those who will be good at the role (as that will deliver better value overall to the members). Consider also the appointment of independent directors, who may be able to add useful experience and skills to the board.