Lawyer or Accountant? And why it matters!
A small business guide to understanding the difference between an attorney and an accountant, and why it matters to your business!
Recently I met with a client who acquired a business years ago and has since had some issues with the previous business owner. He stated that they had a purchase agreement which outlined the relationship, since he was to employ the previous owner as an independent contractor. Easy enough! Until I saw the agreement and it was titled “Asset Purchase Agreement”. What this client thought was that he purchased a business, but in reality, he only purchased the assets of the business! I asked who told him to do it this way, he stated that his accountant advised him to use this form and this method to avoid the capital gain tax on buying a business. What he may have saved on taxes, he will now have to spend on legal fees to battle this previous business owner since the transfer was never done properly!
I wish this was the only person who mistakenly relied on an accountant’s advice, but he is not. After discussing with colleagues, and meeting other business owners, I’ve discovered a plethora of legal issues arising from an accountant “advising” their client. From improper business formation, the wrong entity selection to properly protect personal property, lack of shareholder agreements for corporations, poorly drafted contracts, and the like, business owners are the ones who lose when they trust their accountant to provide legal services!
Accountants are wonderful for understanding and advising on the tax consequences of a business decision. These are things that an attorney should not be advising you on, unless they are also an accountant. Similarly, an accountant should not be advising you on what type of contract is appropriate for your business, nor should they be advising you on anything legal.
Often, small business owners simply do not know when they need a lawyer versus when they need an accountant. They know they need an accountant (the IRS can be scary!) but they see a lawyer as optional. They build trust with this mandatory accountant but remain leery of divulging their personal information to a lawyer. I get it. Business is personal. But, just like that accountant, it is imperative that you develop a long-term relationship with a lawyer you can trust.
You might be thinking now, “I get it, but how do I know I need a lawyer versus an accountant?” This is a great question, and this article may help. But other considerations include:
You need a Lawyer if you are asking:
- What business formation is proper for me?
- Will my current business formation protect my assets?
- Do I have everything I need to establish boundaries and protections in my business relationships?
- Will I have any liability to my employees?
You need an Accountant if you are asking:
- How will different business formations affect my personal taxes?
- Can I write off this expense?
- Do I need to claim my income from my business on my personal taxes or do I file these separately?
- How do I handle payroll tax?
If you are not sure situation needs an accountant or a lawyer, reach out today for a free consultation! Just like a good accountant, a good lawyer should know the difference between legal advice and tax advice.
Contact us today for a free consultation: Courtney@cenglishlaw.com or 314-325-9155.