There are many corporate entities available in Wales that form a separate legal entity and provide the benefit of limited liability. Although all potential corporate entities are listed below it should be recognised that it is envisaged that the majority of cluster delivery vehicles will be community interest companies. Health boards will consider the appropriateness of the company form, considering factors such as ensuring any surplus is re-invested in the company or otherwise benefits the local community.
Corporate entities include:
A company established under the Companies Act, where the members (shareholders) each subscribe for a certain number of shares in the company. A shareholder’s liability is limited to the amount paid or to be paid on the shares they hold and, once those shares are “fully paid”, the shareholder has no further obligation to contribute to the company.
A CLS is registered at Companies House (the register of companies operated by the Registrar of Companies) and the main constitutional document of a CLS is its Articles of Association (Articles).
A board of directors, appointed by the shareholders, is delegated to run a CLS on a day-to-day basis, although there are certain matters that require shareholder consent under the Companies Act and the Articles can also reserve additional matters to be determined by the shareholders.
The number of shares held by each shareholder typically determines the votes they have (usually one vote per share but can be based on a patient list size) and their rights to any distributions of profit (dividends).
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Advantages |
Disadvantages |
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Incorporation is fast |
Not commonly associated with social enterprise organisations |
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Liability of members is limited to their capital contribution
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Can present more stringent filing requirements and general regulation than compared with other structures |
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Widely used and commonly understood structure |
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A CLS is the only entity eligible to hold a GMS contract |
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A company established under the Companies Act that does not have any shares. Instead, the members guarantee (agree) that, upon the winding up of the company, they will contribute a sum towards the debts and liabilities of the company. This is usually a nominal sum (typically £1.00), and each member’s liability is limited to the amount they have guaranteed to pay.
Once the sum guaranteed has been paid, they have no further obligation to contribute to the company
A CLG is registered at Companies House and the main constitutional document of a CLG is its Articles of Association.
A board of directors, appointed by the members, is delegated to run a CLG on a day-to-day basis, although there are certain matters that require member consent under the Companies Act and the Articles can also reserve additional matters to be determined by the members. In a smaller CLG (say up to nine members) all of the members can appoint a director each so that each member is represented on the board and so there may be no need for such reserved matters.
There is no restriction on who can be members in a CLG so stakeholders, such as Councils and Health Boards, could also be members.
The number of votes each member is determined by the Articles but is typically one vote per member (but could be based on patient list size).
Although profits can be distributed by way of a dividend, the lack of a share capital makes it difficult to distribute on a basis other than in equal shares.
CLGs are typically used for membership associations (sports clubs for example) and for social enterprises (see Section 4 below).
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Advantages |
Disadvantages |
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Incorporation is fast |
Not usually adopted as a vehicle for commercial entities or with a view to generating Profit for investors |
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Liability of the Members is limited to a specified amount in the guarantee |
Subject to the same stringent filing obligations as a CLS |
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Commonly associated with social enterprise organisations |
Unable to raise finance by the issue of Shares |
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Suitable for any size of organisation enabling a small organisation to expand without restriction |
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A CIC must be either a CLS or a CLG, but with additional requirements that must be included within the Articles. CICs are addressed in more detail in Section 4 below.
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Advantages |
Disadvantages |
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A structure which is designed as a vehicle for social enterprises that want to use profits and assets for the public good
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The restriction on the organisation making a return to shareholders / members under the dividend cap could inhibit external investment |
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Offer limited liability and are based on the familiar company structure |
Additional regulatory burden |
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Supervision by the CIC Regulator, which is committed to providing a high-level service to CICs |
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A PLC is a CLS but which can offer its shares to the public and these are normally then traded on a public stock exchange. As a result, there are several additional requirements and restrictions in the Companies Act that apply only to PLCs. It is not recommended that a PLC model will be used for a cluster delivery vehicle.
2. Limited Liability Partnership (LLP)
The Limited Liability Partnerships Act 2000 was introduced to provide protection from the personal joint and several liability of partners in a traditional partnership, whilst allowing the LLP to be taxed in the same way as a traditional partnership. As a result, it is popular with professional partnerships, so that members with a larger share of the profits bear a larger proportion of the overall tax liability but they all benefit from limited liability.
In other respects a LLP is very similar to a company limited by guarantee. It is not envisaged that a LLP model will be used for a cluster delivery vehicle.
3. Industrial and Provident Society (IPS)
An industrial and provident society is an incorporated organisation (they commonly take the form of a CLS) which operates either as a Co-operative IPS for the benefit of its members or as a Community Benefit IPS for the benefit of the community it serves, and which is registered under the Industrial and Provident Societies Acts of 1965 and 2002.
Co-operative societies are run for the mutual benefit of their members, with any surplus usually being ploughed back into the organisation to provide better services and facilities, a good example being traditional Building Societies which used the savings of members to lend to other members as mortgages for house purchases (many of these are now PLCs with their shares traded on a stock exchange)
Societies run for the benefit of the community provide services for people in a local community other than their members.
IPSs are registered and supervised by the Financial Conduct Authority (FCA), which maintains the Mutuals Public Register.
The main constitutional document of an IPS is its Constitution.
Typically, the Constitution will reflect the key elements of the Articles and will, for example, include the appointment of officers, delegation to the committee of officers to run the IPS on a day-to-day basis, matters to be determined by the members and voting rights. There are limited rights for members or shareholders to receive any return on their membership / shareholding.
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Advantages |
Disadvantages |
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They are an established form of social enterprise |
Provident Society can be expensive to incorporate in terms of the fees that are payable to the FCA |
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There are no restrictions on the society buying back of its shares if it is structured in the right way
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Control of the society is often equal and not based on the level of investment of each Member. Voting is usually on a one Member, one vote basis (meaning that no one person/body can assert any degree of ‘control’) |
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Potential to change the form of a society in the event that its members want to merge into a new society or a Company |
Distribution of surpluses is permitted, but this is not based on sharing Profits so much as returning the Profits to those who have traded with the society |
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The FCA has a significant regulatory function in relation to registration. The FCA monitors compliance with the registration criteria on an ongoing basis |
4. Charitable Incorporated Organisation (CIO)
A relatively new form of entity created under the Charities Act 2011, designed for (and only available to) charitable organisations in England and Wales. Prior to this most charities incorporated as companies limited by guarantee (and those CLGs can convert to a CIO), which required them to comply with the requirements of the 2016 Act. By contrast, a CIO only needs to register and file accounts and returns with the Charity Commission, so this removes the obligations and requirements under the 2016.
CIOs are registered and supervised by the Charity Commission, which maintains a register of charities, including CIOs.
The main constitutional document of a CIO is its Constitution.
Typically, the Constitution will reflect the key elements of Articles and will, for example, include the charitable objects of the CIO, the contribution to be made by members if the CIO is wound up (typically this is nil), appointment of trustees, delegation to the trustees to run the CIO on a day-to-day basis, matters to be determined by the members and voting rights. The income and property of the CIO must not be paid directly or indirectly to any of its members.
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Advantages |
Disadvantages |
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Members and Trustees are usually personally safeguarded from the financial liabilities the Charity incurs, which is not normally the case for unincorporated charities |
The structure is relatively new and so not as tried and tested as other structures |
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the charity has a legal personality of its own, enabling it to conduct business in its own name, rather than the name of the Trustees |
Trustees will have management responsibility and be liable for breaches of trust and for fraudulent/ wrongful trading |
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Simple to set up
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Not suitable for all types of charity – e.g. exempt charities cannot convert to CIO status |
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Less onerous filing requirements than those applying to companies |
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