ATTORNEY AND ACCOUNTANTS WORKING TOGETHER BENEFITS THE BUSINESS CLIENT

Forming a business entity involves complex tax and legal issues. With nearly 30 years of forming companies for clients, I always tell my business clients that they need both an accountant and a  lawyer on the team. 

Over the years, I have seen clients who prefer to first work with a lawyer to form the company, and then select and hire their accountant. Others tell me that they prefer to form the company, and then wait until the business is “profitable” before hiring an accountant (sometimes learning about the penalty for failure to file a tax return the hard way or missing out on advice from a good tax accountant). Some people go online to incorporate and sort it all out later. I hear that some just avoid a lawyer altogether by working with an accountant who can “handle” the whole thing. None of these approaches make any sense!

Are you a business person with a new business idea, or a recently opened company? If so, please take a few minutes from your busy schedule to remember this one thing - - creating a business entity is an intersection of law and tax!  Incorporating with both a lawyer and an accountant on your team is the key to getting the best result, both in the short term and in the long run.  If you are an accountant reading this blog, handling or coordinating the formation of an entity can result in unwittingly taking on unintended risks.

The importance of having lawyers and accountants work together to cover both spheres has been highlighted by many state courts. Here’s what the Ohio Supreme Court said in Columbus Bar Ass’n v. Verne, which was agreed to in Miami County Bar Ass’n v. Wyandt & Silvers, Inc.:

While we recognize that certified public accountants perform a valuable function in advising on financial matters in the formation of a company, such as how best to structure a business entity for tax benefits, there are still many remaining issues that require legal analysis in choosing a business structure. This case highlights the dangers when those lines are blurred. In this case, respondent [a certified public accountant] helped his clients choose a business structure, a decision that ordinarily requires a significant amount of legal judgment in addition to tax and other accounting considerations. Clients need to know the legal differences between and formalities of available structures and then be advised according to their best interests, taking into account personal and practical concerns, not just tax consequences. Where there is more than one principal involved in the venture, the existing and potential conflicts also must be assessed.

Lawyers and accountants have complementary skills.  Accountants cannot prepare documents needed to form a business entity without running afoul of laws  prohibiting the ‘unlicensed practice of law.”On the other hand, lawyers who are authorized to prepare and file incorporation papers do not have the expertise to deal with complex tax issues that arise for some clients forming a business entity. As such, it simply makes good legal and business sense for lawyers and accountants to work together on the client’s team. 

There is no one-size-fits-all solution to forming a business entity. 

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