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A certified public accountant (CPA) can do many things, but practicing law is not one of them. While most small business owners recognize the important roles that accountants play, they don’t always grasp the limits of their services. While leveraging your accountant for legal matters may seem cost-effective, it often results in complex complications that far outweigh any initial savings.
Every business, from start-ups and entrepreneurships to medium-size organizations, needs competent legal counsel to advise them and defend their best interests. Knowing when to turn to which professional is part of successfully running your business and positioning it for a prosperous future. The team at AttorneyX takes a look at what you need to know about the differences between accountants and qualified attorneys and who to turn to for legal guidance and when.
Why Your Accountant Shouldn’t Double As Your Corporate Lawyer
The question of why you shouldn’t hire an accountant to play the role of a general counsel is not an academic one. There are real-life financial and legal consequences. Asking your accountant to step into the role of legal counselor and representative runs the risk of:
- Not knowing the law: This is the most obvious reason not to ask an accountant to do your business’s legal work. Unless that person is also a licensed attorney, they simply will not have the knowledge and experience to represent you or render appropriate advice.
- Bad advice: There’s a good chance your accountant will give you bad advice, especially in the form of increasing your liability exposure. You may have believed that asking them to do legal work would be convenient, only to invite a world of legal headaches into your life.
- More expensive: Many business owners rely on their accountants to advise them on legal issues as a way of saving money. But poor advice can cost you far more than what you could have paid a tax attorney.
- Illegality: Accountants who are not licensed attorneys, but who do legal work, could be prosecuted for the unauthorized practice of law. Not only could your request cost them their license and their future, but you also could invite unwanted scrutiny from investigators and lawyers to your business.
- Poor reputation: If someone discovers that the person who did your accounting work was also attempting to practice law and was later prosecuted for it, your reputation could suffer. An accountant’s criminal activities always reflect poorly on the businesses that patronize their services and can lead to business owners having issues with the Internal Revenue Service (IRS).
- Potential conflicts of interest: One benefit of hiring a small business attorney is having a trusted professional who can exercise independent judgment. Blurring the lines between accounting and law severely compromises this. Whether the advice you receive is legally valid or not, it may not be wise for your organization.
- You need a team: Running a business in Pennsylvania (or anywhere else) requires input from a number of different people.
Lawyers can do things accountants cannot, and accountants can do things lawyers cannot. Don’t deprive your business of the multitude of voices it needs to be a success.
When Do You Need a Corporate Lawyer In Philadelphia?
If and when you come across the following, then it’s time to speak with an experienced business law attorney:
- Formation of the business entity: Actual formation of your business entity requires an understanding of legal implications (e.g., liability) and preparing and filing the appropriate documents for accurate record-keeping. A lawyer is authorized to do this and is the right person to help with the procedures involved in your formation.
- Risk management: Part of the reason people hire tax attorneys is to minimize the risk of a lawsuit and adverse court judgments. This comes in many forms, such as ensuring you understand the details of premises and product liability. Risk management saves you money, but it requires knowing the law.
- Contract drafting and interpretation: Although financial matters are integral to drafting contracts, only a business lawyer is going to understand which terms and clauses to include or exclude, what they mean, and the potential legal risks inherent to the contract language.
- Tax liability matters: Owners often do not know whether they need a tax lawyer or accountant, but they usually need both – especially when dealing with complex sections of the Internal Revenue Code. While an accountant will have some understanding of tax planning, they cannot advise you on the specifics of state and federal tax litigation. A small business lawyer can.
- Legal opinions and representation: When a small business owner wants an opinion as to how to structure a business deal or whether taking a certain action runs the risk of a lawsuit, they turn to a lawyer. Your lawyer is also the only one who can represent you in formal court and administrative law proceedings, among other legal needs.
How Can You Know Whom to Hire, and When?
The above are only a few things that the respective professionals can handle for you and your small business. If you come across an issue and you are not sure whether to speak to an attorney or an accountant about it, we recommend that you do the following:
- Research the matter: This may require more than a simple Google search. Find out how other businesses have dealt with the issue in question and whether they turned to a licensed CPA or a tax lawyer for their financial planning and tax needs.
- Financial versus liability: If the matter in question is purely financial, it’s most likely that an accountant should deal with it. If it concerns legal issues, including risk and liability, then speak with an attorney about it.
- Understand what both professionals do: Ask your accountant and your lawyer what sort of business issues they routinely handle. Find out which professional is best-suited to handle your specific concern.
- Don’t be afraid to ask questions: You hire an accountant and a lawyer to serve you. So you should feel comfortable asking questions, including to determine which individual should resolve various items of concern for your small business operations.
- Know the limits: The issue you have likely has both business and legal components. It’s therefore important to know the limits of what each professional can do for you. Don’t ask either to do more than what they are competent to do.
Our Business Attorneys Are Here to Provide Advice to Help Your Small Business
As you expand and grow your organization, legal issues and even problems will inevitably arise. Common examples include disputes over contracts, uncertainty about risk, and lawsuits and court judgments that need interpretation. These go with the territory of running a business, so you need dedicated legal counsel who is ready to represent your best interests.
Find out how AttorneyX can advocate for you. We are experienced business lawyers who are uniquely qualified in the complicated questions of law facing companies of all sizes. Learn more about how we can serve your small business by connecting with us today.
