ICAEW.com works better with JavaScript enabled.

3 practice structure considerations

When you are starting up in practice it is important that you are aware of the options to consider. Often the first steps are the most difficult ones. Our Setting up in practice pages will help by pointing you in the direction of answers to some key questions.

1. What structure is right for you?

There are a number of different practice structures used even in ‘start-up’ situations. You will need to consider your own situation to work out what is right for you. While tax considerations are important, you should consider risk management considerations too.

The vast majority of practitioners start as ‘solo’ practitioners (sole practitioners with no staff), become ‘sole’ practitioners (sole practitioners with staff) and then may become partners. The term ‘partner’ is interchangeable in terms of legal structures.

It is increasingly common to see a corporate structure used. This gives various advantages and can position the practitioner as using the same structure of a company as is advised to clients.

The partnership model remains popular and may be a next step after your initial successful years as a sole practitioner. But some new principals wish to start as partnerships (with other practitioners or with their spouse) and some of course may be hiving off from existing provincial firms. So the partnership concept, which is well known and tried and tested, is still common. The partnership agreement helpsheet provides a simple aide-mémoire for practitioners about the content and the value of partnership agreements.

Clearly risk management may be improved by using the LLP model. ICAEW provides information on partnership, LLP and corporate practice structures.

Whichever structure you choose, you will need to notify us of your practice. This includes if you are setting up as a sole practitioner.

2. Who are the principals?

Spouses are often shareholders and/or directors and often they may be non-members.

If non-members are principals in regulated firms (audit, DPB, insolvency or probate regulations or a firm using the description ICAEW Chartered Accountants) ICAEW requires them to be affiliates. This can increase the cost if spouses who are not ICAEW members or entitled to ICAEW affiliate status are partners or directors (see Apply to be an affiliate).

And it is also important to consider the definition of member firms. If your firm is not a member firm, you will not be entitled to be covered by ICAEW’s Practice Assurance Standards, or money laundering supervision scheme.

3. Appointing an alternate

As a sole practitioner, it is a good idea to have an alternate in place so the management of your practice can take place if you are ill. This could be a reciprocal arrangement. In regulated areas such as audit, insolvency and probate, there could be issues with your alternate acting in your place but these are rarely encountered. You cannot sign audit reports as an alternate.

ICAEW requires an alternate if you hold client money. If this is the case, you are required to notify ICAEW of the alternate who should be a signatory to your client bank account/s in order that they can deal with requests by clients for payment of client monies. It is not required that the alternate is a member so some firms prefer to appoint their spouse.

If you want to appoint an alternate, we strongly recommend you formalise this. There are advantages to the alternate acting as your bank signatory although we are aware some firms retain signing rights with their spouse while permitting the alternate to manage the day-to-day affairs of the practice. Your preference is the driver.

ICAEW’s helpsheet about alternates extends the discussion to how to manage the affairs of a firm in the unfortunate event of a practitioner’s death. This is a complex subject in itself. It is prudent to consider now and have a process in place which will give peace of mind to the surviving relatives and help the swift sale of your practice.