The Partnership Review: LLPs - Panacea or Placebo?

Author: Oliver Pool, Partner at VWV
Article Image

With the recent release of Dr Nigel Watson's 'GP Partnership Review', Oliver Pool, partner at VWV examines the key points raised in the report and the overall evolution of the partnership model, more importantly Limited Liability Partnerships.

We have read Dr Nigel Watson's 'GP Partnership Review' with great interest.

Of particular interest from the legal point of view is Dr Watson's recommendation that GPs should be able to operate as limited liability partnerships (LLPs), thereby giving them the benefit of limited liability. This could help allay the fears of newer partners, many of whom are concerned that the fact they have personal liability means that they could "lose their house" if the partnership collapses. However, our view is that it is a bit more complicated than that!

Currently LLPs cannot hold GMS or PMS contracts, and can't participate in the NHS pension scheme - so using LLPs for running GP practices is a non-starter. Dr Watson's recommendation is that this should change - the legislation should be amended to allow practices to operate as LLPs. That seems a sensible suggestion to us. It isn't a panacea though - many other things would have to change before operating as LLPs would make any real difference, as we set out below.

In most cases, partners worrying about taking on personal risk when joining a practice are (or should be) looking at what happens if the practice collapses while they own it. At present, the two main costs arising from a practice collapse are:

  1. paying off the staff and more significantly,
  2. premises costs - i.e. pay the rent for the remaining term of the lease, or paying off the bank loan (and being left short of the value of the building is less than the loan)

The problem is that under current conditions, the premises costs - which are usually the more significant of the two - would be very unlikely to be affected by moving into an LLP, because the bank or the landlord would almost always insist that the partners gave personal guarantees before doing so - so the partners would still have personal liability to the bank/landlord. When looked at this way, arguably the only ones who would really benefit from practices moving into LLPs would be the professional advisers who helped them to do it.

But as we say above - it's a bit more complicated than that, and there are two key reasons why it seems to us that allowing practices to use LLPs would nonetheless be beneficial in the longer term:

  • First, it is true to say that today banks and landlords would want personal guarantees. But will that always be the case? Will things change in the future, especially as practices get bigger, so that banks and landlords will no longer require personal guarantees? The only way of getting there is to change the rules and see if things develop. Using LLPs may not give immediate rewards to the "first movers" but if enough practices do it and the landscape changes so that banks and landlords start to take a different commercial view, it may help in future.
  • Secondly, many of the issues we see relating to younger GPs refusing to become partners relate to that intangible commodity: confidence. Confidence isn't always rational. It may be that LLPs don’t give any immediate benefits - but if they enable new partners to feel more comfortable with taking on business risk, that in itself is a benefit. Looked at from this perspective LLPs may not be a panacea - but they may be a very effective placebo.