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Editor's blog Thursday 20 January 2011: Consortia, body corporate status and the Health and Social Care Bill

Cabinet Office guidance on setting up a new public body, dated January 2007, states:

"2.1 Statutory Authority
"2.1.1 Where the Public Body is to be funded by the sponsoring department it is likely that statutory authority will be required.

"2.1.2 In addition, statutory authority may be needed to confer the relevant functions on the Public Body. In particular, where a department is hiving off one of its own statutory functions, legislation will usually be needed to amend the underlying legislation. The underlying principle - that departments should not generally hive off their functions to Public Bodies without specific statutory authority – applies generally to all types of hiving off and irrespective of whether the body is a new or an existing Public Body. Departments should discuss all such proposals with their legal advisers.

"2.2.1 Primary legislation
Most Executive NDPBs require legislation, in order to confer functions on the body, and also for reasons of government accounting. Where the body is created by legislation it will usually be incorporated as a body corporate by the founding legislation, although sometimes functions are conferred onto a body that is incorporated in a different way. It should be noted that it is the Office of National Statistics who are responsible for determining whether a public body (irrespective of its legal status) fulfils the criteria of a Public Corporation. Please see Paragraph 7.5 of Chapter 2: Policy and Characteristics of a Public Body for further information."

This section reads, "7. The different types of Public Bodies – key characteristics

"7.1 Executive NDPBs are set up by Ministers to carry out administrative, commercial, executive or regulatory functions on behalf of the Government; are legally incorporated and have their own legal identity.  This means that they are established by Act of Parliament, by Royal Charter, under the Royal Prerogative, or incorporated under Companies Acts legislation and charity law; employ their own staff; are allocated their own budgets; are not Crown bodies and do not have Crown status (apart from the few exceptions mentioned in the ‘Staff’ section of this guidance); appointments to the boards of the bodies are made by Ministers, by officials on behalf of Ministers, by the Prime Minister or the Queen on the advice of ministers.  Some may be made by the bodies themselves. Ministers are ultimately answerable for the performance of the bodies and for their continued existence, e.g. ministers have the power (subject to Parliamentary approval if necessary) to wind the bodies up.

"7.1.2 Legislation is normally required to establish any new Executive NDPB that will require continuing government funding.  It may also be needed to provide for particular powers or obligations.  You will need to consider the availability and timing of possible legislative opportunities before deciding to set up an Executive NDPB.

"7.1.3 Where there is existing legislation and parliamentary authority already exists for the funding of a particular programme and it is subsequently decided to change the delivery mechanism by setting up a company limited by guarantee, which is then classified as an Executive NDPB, such legislation may not be required.

"7.1.4 A body established under the Companies Acts, that is not classified as a ‘market body’ by the Office of National Statistics (and therefore is not a Public Corporation), may be classified as central government public body and accordingly fulfil the criteria of an Executive NDPB for governance and accountability purposes.  Please see Chapter 3 (Setting up a new Public Body – The Legislative Requirements) for further guidance about incorporation as a company."

The main document resumes, "2.2.2 Incorporation under the Companies Act

" In general terms the advantages of incorporation are that a body corporate is an independent legal entity, separate from its shareholders or members, and the liability of the members to repay debts of the company is limited. Basic guidance on the registration requirements for forming a new company can be found in the Guidance Booklet on Company Formation (GBF1) available from Companies House and on their website at http://www.companies-house.gov.uk/.

" Public Bodies incorporated as companies limited by shares are rare and are set up expressly for trading purposes. Companies limited by guarantee are normally formed for charitable or for other non-trading purposes, although they may carry out some trading activities. Many Public Bodies constituted in this way are financially self-sufficient and do not receive grants-in-aid. Setting up a Public Body as either a limited company or a charity may have tax implications. Departments should therefore consult HM Revenue and Customs on the tax implications before establishing Public Bodies as limited companies or charities.

" Where specific legislation is not required, incorporating a body as a company can be relatively easy and straightforward. It is likely to be appropriate where:
• a Public Body requires corporate status to give it legal personality but departmental expenditure is insufficient to justify new legislation;
• a corporate body is needed temporarily (eg for a short-term task such as a collaborative
promotional venture which would not warrant legislation) or provisionally pending a decision
whether it should continue on a statutory basis; or
• a body is set up as a limited company prior to privatisation, with assets transferred to it by
enabling legislation."

It also states, "2.7.1 With three notable exceptions (the Health and Safety Commission, the Health and Safety Executive and the Advisory, Conciliation and Arbitration Service which are Crown bodies), Public Bodies with their own legal personality do not enjoy Crown status and legislation to establish a new executive NDPB should make clear that the body is not part of the Crown. Staff of Public Bodies that have a separate legal personality are not civil servants".