Am I a successor CPA in this scenario?

So a little over year ago, a local sole-prop was selling her practice. She and I got in touch and made a deal. She felt that if I had some exposures to her clients then it would be better to maximize retention rate. Long story short, we formed a LLP where she is the 51% owner and i am 49%. I am moving forward with acquiring the remaining 51%. On the draft agreement, she insisted that we need to send a letter to the clients and have clients sign and approve the transfer of files.

I am a general partner in the LLP, I have unlimited access to client files plus I signed over half of the returns done by the LLP. Why do I need to get client approval to transfer files to myself?

I understand if this was a straight up sale, we would be required to get client consent. But I don't believe I am a successor CPA in this case.

Thoughts?

This is just my non attorney opinion so please do not consider it legal advice.

If the tax prep firm is a LLP and you are 49% owner and you have signed over half of the returns you do not need permission to transfer any files. After you buy out the 51% owner I am assuming you will be the sole owner of the business.

I will be the sole owner after buyout. The LLP will dissolve and I will form a new professional corp and operate.

That's my thought as well. But she disagrees.

What about the dissolution transaction, you’re (a person) stepping into the shoes of the LLP wrt the assets.

if you keep the LLP you’re not a successor.

Successors is applicable when a contracting party is an entity, and when the party is an individual. A corporation’s successor might be the surviving corporation after a merger. A successor also could be the entity or person who purchases the contracting party’s business. For an individual, the executor of that person’s estate or would be a successor. A spouse who receives an asset in a divorce settlement sometimes might also be a successor.

An assign (or assignee) is someone to whom the contracting party intentionally transfers ownership of the contract. The assignment can be done directly, where the contracting party expressly assigns the specific contract. Or, the assignment can be indirect, for instance, where the contracting party transfers the assets of a business to a purchaser.

https://whitmanlegalsolutions.com/blog/ ... s-contract

to determine if there is a successor just look at the assets and if they go from one person (including entity) to another person you have a successor.

There are other exceptions even if you are a successor, for example that you are already the tax preparer, but your new PC is not.I would reveiw the tax rules for privacy and the CPA rules. Here https://www.aicpa.org/interestareas/pri ... nning.html

I will be the sole owner after buyout. The LLP will dissolve and I will form a new professional corp and operate.

That's my thought as well. But she disagrees.

I agree with you.... why don't you propose buying out 25 or even 50 percent more and then the remaining percent in year 2 thus removing any issue.

A fading thought is the position she is taking would make me nervous as a buyer.

A fading thought is the position she is taking would make me nervous as a buyer.

Same here. Is she going to sign a noncompete?

Get an attorney.

Get an attorney.

Agreed. I would never act upon guidance on a website in this kind of instance. A website might help to gather some experiences, but this is definitely the kind of situation you need specific legal guidance.

thx for all the suggestion.

We did agree to hire an attorney and follow counsel's advice if we cannot resolve on our own.

I don't think seller has any ill intent, i been working with her for almost a year now, she's just the type that follow the law and wants to cover all her bases.

I just learned that this whole issue arised because Camico, our mal-practice insurace, gave seller the advice. I don't know if the person giving the advice has all the facts. She said if there is an entity change, from LLP to Corp, client noticifications need to be sent out, and each client must sign and return the consent form. The 1st thing that comes to mind is this is nuts...so if i am a sole-prop and decide to convert to S-corp, I need to notify all my clients and get consent to tranfer files to myself.

I need to talk to Camico and hear what they have to say.

Can you share any of the details of your deal?
Always interested in hearing others buy/sell experiences.
Buyout as % of gross, length of payout, etc

Eric, you need to obtain your own counsel and listen to what they say. Talking to someone who has already given advice to your partner is not going to get you any further forward, as far as I can see. If you get different advice to what they gave her, how can either of you trust any of it?