Unusual Accountancy business proposition

[S.namhar279]

I have been approached by a long time family friend (Call him R) with an interesting business proposition. We are both accountants by trade, myself ICAEW within industry, R an ACCA within a very small public practice (3 partner high street firm). R's boss has retired recently and a host of his existing clients are unhappy with the services of the other two partners - they are slowly moving away from the practice. R is taking on the clients solo on the basis that he would apply for a practicing certificate with ACCA, however upon further enquiry, he is unable to get the practicing certificate as he is only 1 year post qual (needs to be 3), despite a decade of non-qualified employee experience. He needs employment for two years to be able to obtain this practicing certificate. However, if he seeks employment elsewhere for 2 years, and then gets his certificate, the clients he has been offered will find services elsewhere and he will have to start from scratch.

I have 10+ years post qual experience and should get a practicing certificate without an issue. R has asked if I could set up a limited company (me as sole director), bank account, employ him, and allow him to use my practicing certificate to offer services, until a point where he can get one himself (should he choose to at this point). I would be offered a fee for this (to be agreed), and access to the records etc.. as much as I request.

I was wondering if there are any specifics that would prevent me from entering such an arrangement and whether there are any safeguards I should put in place should anything go wrong?

Thoughts appreciated please.

I do not intend to be a completely silent partner/owner, but at the same time, my full time job limits my capacity to fully immerse in the business and so it will be run predominantly by R.

Thanks in advance.

 

[Ozzy]

Coming at this from a slightly different angle, is there a reason you would not want to do this properly?

...and by properly I mean, actually go into business together and setup the firm with you both building it up and building your own clients. Yes it can start as you describe but with the plan in two years R becomes Partner and it be a proper partnership.

If not, what is stopping you from doing this and that may give you the answer to the question you are asking.

 

[S.namhar279]

Coming at this from a slightly different angle, is there a reason you would not want to do this properly?

...and by properly I mean, actually go into business together and setup the firm with you both building it up and building your own clients. Yes it can start as you describe but with the plan in two years R becomes Partner and it be a proper partnership.

If not, what is stopping you from doing this and that may give you the answer to the question you are asking.

Ozzy, thanks for your response. Yes, that is definitely a viable route, I see the two years as almost a trial period where I can see if we can work together, build the business (albeit with limited time from my end) and make it a partnership. If it doesn't work for whatever reason, then after two years R will get his practicing certificate and continue solo, and I will carry on with my full time employment.

I guess my concern is if it goes badly wrong and the steps I need to take to ensure my own protection against this, given it will be my name on all the records at companies house, my business bank account and my practicing certificate, so ultimately, the liability falls on me if something goes wrong, yet I am not performing the bulk of the work.

Would you recommend putting a contract in place between director (me) and employee (R) beyond the basic employment contract to formalise the arrangement? Can this be a signed piece of paper or should this go through a solicitor to ensure it is a watertight legally enforceable contract?

Would it be appropriate to charge a fee to R for him utilising my practicing contract and compensating the risk I am taking on for him?

Thanks

 

[Newchodge]

Given it is your practicing certificate at risk, how do you plan to supervise your employee?

 

[S.namhar279]

I do plan to review everything that goes out and ensure everything happens “by the book” in respect of no casual arrangements, engagement letters, KYC, AML, data protection etc… also will take steps to ensure everything is recorded on the books and no off record cash payments.

Beyond this I hadn’t planned to take significant involvement on the day to day activity from day 1 although this may change in future.

Thanks

 

[Newchodge]

I do plan to review everything that goes out and ensure everything happens “by the book” in respect of no casual arrangements, engagement letters, KYC, AML, data protection etc… also will take steps to ensure everything is recorded on the books and no off record cash payments.

Beyond this I hadn’t planned to take significant involvement on the day to day activity from day 1 although this may change in future.

Thanks

My biggest concern is that there is a (probably) valid reason why newly qualified accountants cannot get a practicing certificate for 3 years, and you don't really seem to be taking that into account. Presumably your job within industry will prevent you being on site at your business every day? An awful lot can be done wrong if the employee knows there is no day to day supervision. I would worry that your biggest problem would be managing the employee's belief that they know what they are doing.

Everything else is just a question of getting proper legal advice about the right agreements and contracts.

 

[PCD]

You state that you are an 'ICAEW within industry'. What do you actually know about running an accountancy practice? The roles within industry and practice are different. Would ICAEW even give you a practicing certificate without practice experience?

Also do the remaining partners of your friend's employers know that he is taking on their clients personally. It would be unusual if this was not in breach of his employment contract.

 

[Daybooks]

If somebody asked me to allow them to use my practicing certificate for their own gain I would be on the phone to their Institute straight away. Why aren’t you?

I would have made clear my contempt for the request.

 

[S.namhar279]

Thanks for all responses.

@Newchodge - I think the ACCA rules are a bit harsh for some particular circumstances. This individual has 15 years non-qualified practice experience, and the only reason he was so delayed in completing his exams was due to personal reasons. He is much better qualified in a practice role than most 3 years post qualification ACCA members.

@PCD - I have run a small accountancy business in the past alongside my industry role. I would not expect any issues in obtaining a practicing certificate this time around.

@Pi Daybooks - Interestingly enough, I have been trying to get through to ICAEW ethics and practicing certificate hotlines all week, and just managed to get through to them yesterday afternoon. They weren't very helpful, but it was helpful to know that in theory, this should not be a problem in obtaining a certificate (I explained the circumstances in the same way as I have on this thread). They would need me to comply with all of ICAEW's rules around practicing certificates (obviously) and play some role in reviewing everything that goes out the door. Other than that they did not say much at all.

 

[Daybooks]

I think they said what needed to be said. You need to play a role in everything that goes out the door. With my Institute it is clear that the practicing certificate is for the individual and so there is absolutely no confusion and they do not issue certificates to firms. Thus there are no registered Chartered Management Accounting firms, despite some belief to the contrary. I believe other bodies do issue firm certificates but these cover other aspects.

The risk you expose yourself to is you become responsible for all work delivered including sub-standard. If “R” is essentially going it alone the clients are being deceived into thinking there is still proper regulation, an impression being enforced by “R”’s actions. Do you really want to take these risks and work with someone who has already demonstrated their willingness to deceive and make you culpable? I think your judgment is being tested.

 

[Newchodge]

Thanks for all responses.

@Newchodge - I think the ACCA rules are a bit harsh for some particular circumstances. This individual has 15 years non-qualified practice experience, and the only reason he was so delayed in completing his exams was due to personal reasons. He is much better qualified in a practice role than most 3 years post qualification ACCA members.

@PCD - I have run a small accountancy business in the past alongside my industry role. I would not expect any issues in obtaining a practicing certificate this time around.

@Pi Daybooks - Interestingly enough, I have been trying to get through to ICAEW ethics and practicing certificate hotlines all week, and just managed to get through to them yesterday afternoon. They weren't very helpful, but it was helpful to know that in theory, this should not be a problem in obtaining a certificate (I explained the circumstances in the same way as I have on this thread). They would need me to comply with all of ICAEW's rules around practicing certificates (obviously) and play some role in reviewing everything that goes out the door. Other than that they did not say much at all.

So you are happy to deceive clients?

 

[S.namhar279]

Thanks both for your responses:

@Newchodge No intention of being happy to deceive clients at all. I am unsure how this suggestion has come about from re-reading my response to you. Clients should be (and will be) fully aware of the circumstances with me as sole partner/owner of the business working with an employee doing the bulk of the work (similar to an arrangement you would see in many practices with non-qualified and qualified staff working together on engagements). I would naturally need to take a role in terms of signing off on anything and ensuring work has been carried out to a good enough standard and that will be part of my role as practicing certificate holder, ie. that of a reviewer rather than a do-er.

@Pi Daybooks Thanks for your response - Yes, I think you are right in that I need to take steps to ensure the work is to the correct standard. I am also unsure about your comment with deceit. I really am a bit unsure where this is coming from as there is no intention to deceive anyone. Any client (existing or prospective) should know the arrangement and make an informed decision. I see this no different to any other small practices who employ non-qualified staff to do the bulk of the work and this is overlayed by a partner review to ensure all is well prior to release/sign off. The only difference here is the rationale behind the engagement, which is to support "R" who is not able to support himself due to lack of experience as defined by ACCA.

 

[Daybooks]

Both I and @Newchodge have advised that there is potential deceit. You have stated that the business will be predominately run by “R”. Regardless of the experience of “R” your practicing certificate is being used as a “conduit” for “R” to run a business for themselves in a capacity that their personal governing body will not allow. That is deceitful.

Whilst you may contend that you are supervising, is that something that “R” accepts - namely having all work checked? If “R” starts making business decisions for which others rely on what is your defence? Will your terms of engagement really be making it clear to clients that this arrangement is merely to allow “R” to operate and that you will supervising everything.

You suggested charging “R” a fee for using your certificate. Your Institute may have something to say on you “selling” the use of your certificate.

The informed decision to be made is yours.

 

[S.namhar279]

Thanks for clarifying - understand the point here. I guess the key points from my perspective is, R will not be running the business himself, I am a facilitator towards him retaining his customer base, but he will not be a solo operation. For him to be able to operate, I am insisting on full control, access to records and review requirements. The work for this will obviously have a cost, which I would take out of the company as a salary or dividends.

The engagement letter would state my name as the director, and that the work would be carried out by an employee of the company under my supervision/responsibility, similar to how any practice would operate with lower graded staff reporting to a partner for example.

I appreciate the premise of charging a fee for use of the certificate is not an appropriate structure, but in essence I would expect to take £x out of the company in any given year and that can be a salary or dividend which would be my right as a company owner.

 

[Daybooks]

If your intended letter of engagement is in fact the reality then maybe not unreasonable. I hope you don’t spend all your time managing expectations. Good luck with your decision.