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Social enterprise as a route to commissioning


11 Oct 2011

Under the new regime control will shift from PCTs to the newly created commissioning consortia, and many of the responsibilities that were previously dealt with in-house will be outsourced to independent organisations. Various pharmacists across the UK have already joined together to form groups in order to make a joint bid for PCT supply contracts within their area. A consortium of this nature will be made up of a number of already well established practices, so the question arises as to which corporate vehicle is most appropriate to utilise.
In July 2010 the NHS white paper, ‘Equity and excellence: Liberating the NHS’ set out the aim to put patients first and to focus on the things that really matter. Therefore organisations which demonstrate primarily social objectives are more likely to fit the bill when it comes to PCT outsourcing. This type of organisation is known as a social enterprise, and its use within the healthcare sector has grown rapidly within recent years. However, that is not to say that a social enterprise is akin to a charity. In fact, the whole ethos behind them is wholly different.

Understanding social enterprise
There is no strict legal definition of what constitutes a social enterprise but the Government has described them as: “businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners”2. In February 2010 the Social Enterprise Mark was launched as the brand for social enterprises. It requires a business to meet six defined criteria in order to qualify, and these are:

  • The organisation must have a social or environmental aim;
  • The organisation must have a constitution;
  • At lease 50 per cent of the organisation’s profits must be spent in achieving their social aim or on socially beneficial purposes;
  • The organisation must earn at least 50 per cent of its income from trading;
  • The organisation can demonstrate that its social or environmental aims are being met;
  • If the organisation were to cease trading the remaining assets would be distributed for social or environmental purposes.

It is important to note that social enterprises are not defined by the legal form that they take, which means there are a number of options when considering which legal vehicle to use. These can range from unincorporated organisations to companies that are specifically created for that purpose, known as community interest companies (CICs).
CICs are operated as normal companies but they have certain limitations and particular features imposed upon them, namely:

  • They must carry out activities which fulfil a specific ‘community purpose’ (eg the promotion of healthcare for the inhabitants of a certain area), which must be defined in the application form upon incorporation;
  • There is a lock on their assets which prevents them from being sold at an undervalue or transferred out of the business except in certain circumstances;

A dividend cap applies which restricts the amount of profits distributed to its members, whilst allowing its directors to be paid.

 They have a limited company structure and are regulated by the CIC Regulator. Regulation is intended to be ‘light-touch’, but in addition to its usual obligation to file accounts the company must also provide evidence to the CIC Regulator that it is operating in a manner that satisfies the Community Interest Test. In other words, that it is making reasonable efforts to achieve its community purpose.

The LLP option
The CIC provides a corporate structure that is recognisable and fairly straightforward to operate. However, a consortium could avoid the added requirements imposed by the CIC Regulator whilst maintaining a legal structure which openly operates as a social enterprise, by operating as a limited liability partnership (LLP) with specific aims written into its formation documentation.
The main benefits of this are that LLPs:

  • Have a far more informal single-tier structure which allows all the members to have a say in how the organisation is run
  • Are usually governed by an LLP Agreement, which is similar to a company’s articles of association, and can be drafted in such a way as to include protections for the organisation’s social mission, similar to those adopted by a CIC;
  • Limit the liability of its members as with a company;
  • Have less stringent filing requirements;
  • Remain tax ‘transparent’, which means that the members are taxed in their capacity as individuals or corporate bodies in accordance with their tax status.

The formation of an LLP is fairly straight forward and the LLP-Agreement can be drafted to suit the needs of its corporate members. However, it is important to ensure that the consortium utilises the legal vehicle that best suits its individual needs and the needs of its members.

Hilary D’Cruz,
Corporate Partner Specialising
in pharmacy transactions at
Ansons Solicitors

References
1. Equity and excellence: Liberating the NHS. The Stationery Office (July 2010)
2. Social Enterprise: A strategy for success, DTI 2002

Further information
Our partner-lead corporate team at Ansons LLP can offer advice and expertise on the most appropriate legal vehicle for you organisation. Ansons is currently offering independent retail and community pharmacists a free 30 minute consultation. To arrange a discussion on any of the above points call our corporate team on 01543 466 660 or email hdcruz@ansonsllp.com.

 


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