Legal protection: Why accountants should practice what they preach

Edwin Ross of Edwin Ross Solicitors explains why misery and aggravation follows when there are no binding written agreements between practice owners.

As a solicitor, I spend much of my time dealing with accountancy practices that are looking for advice in relation to their mergers and acquisitions, as well as resolving disputes between existing owners. Although I work with a range of practices of all sizes, I am frequently confronted by accountancy firms that have no documentation or badly drafted agreements regulating the owners' affairs.

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Mike Sturgess's picture

Less than 10% of accountants have effective agreements

Mike Sturgess | | Permalink

Edwin is spot on with this issue. In our experience at least half of the firms have no agreement at all. Of those that have, many have never signed them, have never updated them following partnership changes, or have major gaps in them. Those firms with comprehensive up to date agreements probably represent less than 10% of firms we talk to. (Of course, this could be a biased sample, as firms with effective agreements tend to have far less practice management problems).

We all hope that when we start a business venture we will not hit problems. The best partnership agreements are those that are never needed. However, their existence can often prevent disputes.

Most disputes are eventually settled without legal action, although we have seen partners head to the courts. In one case the substantial legal costs were ultimately treated by the judge as a partnership expense to be paid in profit sharing ratios.

The worst situation I came across was a sole practitioner who took on a younger partner, but without a partnership agreement. When things clearly weren't working out he suggested that the younger partner should leave. He refused, on the grounds that he now owned 50% of the practice under the Partnership Act 1890. Work became so unbearable that in the end the original sole practitioner left!

If you think of the agreement as an insurance policy, and the costs of producing it as the initial premium it becomes a much easier decision. Just do it!