Do you ask your attorney to file your taxes every year? Do you ask your lawyer to audit your company? †If your answer to either is “no”, then why would you ask your accountant to form your business entity.
I have been working with a client for about a year, advising him on intellectual property issues and drafting contracts for his business. When it became clear that he needed to set up a business entity to protect his rights and the intellectual property, I advised him what type of entity to form, explained that there were some complexities with his situation that would need to be addressed, and gave him a flat fee estimate. His response: “My accountant can do it for less.” The accountant set up a corporation for him.
Last week I received a frantic call from the client who was wondering whether the corporation would protect his interests. When I asked what was in the corporation’s bylaws and the assignments of intellectual property, he responded that all he had was a book of corporate forms that weren’t filled out except for the name of the company. The client was not happy after I advised him that the intellectual property at issue was probably not owned by the corporation and all of his contracts may be void.
At the end of the day, my fees to restructure the corporation will be higher than our initial flat fee quote. When forming a business entity, it usually makes sense to pay attention to all necessary issues up front:
I wonder if he will ask me to prepare his tax returns.