The Limited Liability Company - a New Form of Accounting Practice

By Sager, William H. | The National Public Accountant, March 1992 | Go to article overview

The Limited Liability Company - a New Form of Accounting Practice


Sager, William H., The National Public Accountant


Members of AICPA recently voted by mail ballot on whether Rule 505 of the current AICPA Code of Professional Conduct should be amended to allow them to conduct their practice under any form permitted by state law. The current Rule 505 adopted in 1969 allows a member to practice only as a proprietor, partner or professional corporation (PC). Deleting the word "professional" from Rule 505 would permit any form of practice organization that state law permits.

Currently, we are not aware of any state that permits a licensee of the board of accountancy (that is, a PA or a CPA) to practice as a business corporation whose members (shareholders) have limited liability. Accordingly, the search is for an organizational form permitted by state law for licensees of the board of accountancy that will provide for limited liability of the individual licensed accountant or firm, protecting in a lawsuit those licensees or partners who were not negligent, but not protecting those who were.

While the practice organization of accounting licensees may take the permissible form of a professional corporation (PC), the PC does not give licensees the extent of legal protection they seek, namely an organizational form of practice that will minimize liability exposure of shareholders. The PC does not always minimize that liability exposure. In most states the PC shareholders could be held liable for a judgment against the PC even though the shareholder was not an individual party to the litigation. Thus, the liability exposure under the PC is greater than that under the ordinary limited liability business corporation. In a few states (California is one) shareholders under the PC form of organization have the same unlimited personal liability as partners and hence the same liability exposure. Also, state PC statutes lack uniformity and tend to vary somewhat from state to state, creating a problem for the large licensed firm engaged in a multistate practice.

A new form of corporate organization has recently appeared that may decrease liability exposure if the statute is properly worded and if the state accountancy laws are amended to provide for adoption of the new form. This new form is called the limited liability company (LC) which combines the limited liability of the business corporate form with the tax benefits of a partnership. Virginia is one of several states that has acted in this area. In 1991, it adopted the Virginia Limited Liability Company Act, which provides that no member, manager or other agent of a limited liability company shall have any personal obligation for any liabilities of a limited liability company, whether such liabilities arise a contract, tort or otherwise, solely by reason of being a member, manager or agent of a limited liability company. (VA Code, Sec. 13.1 - 1019, 1991).

As with any LC, the Virginia law provides that the profits and losses of the company shall be allocated among members and the classes of members in the manner provided for in the written articles of organization or operating agreement. If the articles of incorporation or an operating agreement do not provide for a division of the profits and losses, then the profits and losses will be allocated on the basis of the value as stated in the company's records regarding the contributions made by each member.

However, there is an annoying fly in ointment. The Virginia Limited Liability Company Act specifically excludes "professional services" as defined under the Virginia Professional Corporations (PC) law. Public accountants and certified public accountants are specifically included within the term "professional service." Therefore, CPAs in Virginia (or other states that have a similar provision in their limited liability company law) may not take advantage of the LC form of organization. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Limited Liability Company - a New Form of Accounting Practice
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.