- A key thing to consider before you set up an accounting practice is the structure of the business.
- Having adequate legal protections minimises risk and lets you focus on building your practice.
- Protecting your intellectual property is generally inexpensive and guards your brand in the market.
There are two pathways for an accountant seeking ownership-level responsibility – either join an established accounting practice or start your own.
Even as a legal professional who works with accountants, I am often surprised at the level of importance that legal considerations, to protect both the accountant and the practice, take in negotiations and documentation.
While it may be tempting take the quickest and cheapest route, doing that can cost you in the long run because you may lose tax effectiveness, growth, certainty of responsibilities, risk mitigation and scalability.
It is essential you have the right structures and agreements in place to ensure effective management, operations and compliance; in turn, that allows you to focus on your core business of caring for your clients.
What you need to consider
Key considerations before starting a practice include:
- Engaging the right external consultants to help you, which may include IT, funding, a buyer’s advocate or premises experts, recruitment, marketing and the law.
- The structure and all associated documents governing the parties’ relationships within the business and with each other. For example, shareholder agreements and employment agreements.
- IT systems and practice management software
If joining an established practice, you need to consider:
- What is the structure of the business – is it a trust, associateship, partnership or company (or a combination)?
- What are the business liabilities and what will you be liable for when you join?
- Have you obtained legal support, valuation advice and due diligence input? What is the warranty and indemnity position?
- What are the profit-sharing mechanisms and dispute resolution mechanisms? How do you resolve if someone wants to exit or alter arrangements?
Legal protection for systems and growth
Now that you have your business established, there are legal questions you should ask to ensure that you secure your practice, reputation and business moving forward:
- Do you have employment or independent contractor agreements which provide sufficient protections and clarity?
- Have you protected your brand, work, your intellectual property and referral bases?
- Asset protection: Do you have a valid will, insurance policies and an enduring power of attorney document?
Employee/contractor roles and expectations
Will your shareholders also be an employee of the company? Before making your shareholders employees in the practice, consider the risks surrounding minority shareholders.
A shareholder that does not have control of the company or the majority of the shares can cause significant issues for the business through their role as an employee if they become of the view that the right thing is not being done by them by the majority shareholder/s.
If it is decided to employ shareholders, I recommend that there is a well-drafted Shareholders Agreement, and that employment agreements are implemented.
Picture: Zac Herps, Hillhouse Legal Partners.
“If it is decided to employ shareholders, I recommend that there is a well-drafted Shareholders Agreement and that employment agreements are implemented.”
The importance of intellectual property
This is one of the main things that sets your brand apart from your competitors and failing to protect it can leave your business vulnerable to a competitor.
Generally, this is an inexpensive process, especially compared with the risks of a competitor using your intellectual property or client data being compromised.
Do you have a valid will?
Having a valid will and an enduring power of attorney (EPA) document will ensure your assets are protected (including your business), your family is looked after and your superannuation and insurances are distributed as you wish.
Subject to the structure of the practice, your practice itself can form part of your estate. Consideration should be given to how other partners may buy out your interest, or clear mechanisms provided for how a practice is sold.
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