Why can't law and accounting firms go public?

[Special K]

Why can't law and accounting firms go public? I know they make up for this somewhat by offering partnership to their employees, but why can't they go public and sell stock to the public?

Or are they capable of it, but all choose not to?

Or are there public accounting and law firms out there? Off the top of my head I cannot think of any, although I am not an accountant or a lawyer so my knowledge of the industry is limited.

 

[EagleKeeper]

A company can choose how they want to be held.

Going public exposes one to much more public scrutiny.
The only purpose would be to spread the costs of the company around.

Companies that operate on paperwork output have little need for additional capital.

 

[Xavier434]

I'm not sure if they can go public or not. What kinds of effects would we see if rich stock holders suddenly had some financial power over a large number of our nation's lawyers? My initial reaction to that thought is kinda scary but the truth is that I have no clue what would happen.

 

[maziwanka]

laws - you can't have non lawyer owners of law firms

 

[thespeakerbox]

Contradicts IRS code

Internal Revenue Code § 448 and § 461 (cross referenced in 448), would forbid any publicly traded US law firm from using the cash method of accounting.

 

[krunchykrome]

Originally posted by: thespeakerbox
Contradicts IRS code

Internal Revenue Code § 448 and § 461 (cross referenced in 448), would forbid any publicly traded US law firm from using the cash method of accounting.

cash method? what is this, a corner convenience store?

 

[Kelvrick]

It also creates independence issues. Rich people would probably own parts of you, and you'd likely be doing work for/auditing/accounting for companies that rich person might own/be chairman of.

 

[axelfox]

Originally posted by: thespeakerbox
Contradicts IRS code

Internal Revenue Code § 448 and § 461 (cross referenced in 448), would forbid any publicly traded US law firm from using the cash method of accounting.

so accrual method is OK?

 

[BrunoPuntzJones]

In TX you can have non-accountants own CPA firms. I think was changed pretty quick after it passed, but there are some in the area that have non-CPA owners.

 

[Special K]

Originally posted by: EagleKeeper
A company can choose how they want to be held.

Going public exposes one to much more public scrutiny.
The only purpose would be to spread the costs of the company around.

Companies that operate on paperwork output have little need for additional capital.

This reply makes it seem like it would be possible for a law or accounting firm to go public, but that they all choose not to. The other replies below suggest that they legally cannot go public. Which is it?

 

[EagleKeeper]

Originally posted by: Special K

Originally posted by: EagleKeeper
A company can choose how they want to be held.

Going public exposes one to much more public scrutiny.
The only purpose would be to spread the costs of the company around.

Companies that operate on paperwork output have little need for additional capital.

This reply makes it seem like it would be possible for a law or accounting firm to go public, but that they all choose not to. The other replies below suggest that they legally cannot go public. Which is it?

Get some of our legal beagles to come up with answers.

 

[vi edit]

Being private helps bar them from a pile of regulation and scrutiny. Maybe the juice just isn't worth the squeeze.

 

[krunchykrome]

an LLP leaves more flexibility bewteen profit/loss sharing ratios among partners and has more flexibility to amend the partnership agreement.

Public Accounting firms already receive peer reviews, but if the firm were to go public, can you imagine the SOX complications.

Another point to mention is that a publicly traded company's top priority is to keep shareholders happy. In other words, their bottom line goal is profit. Ethics are thrown out of the window. The public accounting profession's #1 asset is ethics and public perception. Without these, public accounting hold no attestation value. The fundamental purpose of a cpa firm (audit specifically) is to provide a level of assurance that a company's financial statements are free from material mistatement. Every year, public firms go through a process where they evaulate their existing clients, and possibly discontinue a business relationship with many of them if the firm feels as though the company is not a good client (unethical, etc). If the firm was publicly traded, the firms wouldn't go through this process and would continue to retain bad clients, regardless of ethics.

 

[Xavier434]

Originally posted by: krunchykrome
an LLP leaves more flexibility bewteen profit/loss sharing ratios among partners and has more flexibility to amend the partnership agreement.

Public Accounting firms already receive peer reviews, but if the firm were to go public, can you imagine the SOX complications.

Another point to mention is that a publicly traded company's top priority is to keep shareholders happy. In other words, their bottom line goal is profit. Ethics are thrown out of the window. The public accounting profession's #1 asset is ethics and public perception. Without these, public accounting hold no attestation value. The fundamental purpose of a cpa firm (audit specifically) is to provide a level of assurance that a company's financial statements are free from material mistatement. Every year, public firms go through a process where they evaulate their existing clients, and possibly discontinue a business relationship with many of them if the firm feels as though the company is not a good client (unethical, etc). If the firm was publicly traded, the firms wouldn't go through this process and would continue to retain bad clients, regardless of ethics.

Reading that and applying the same thought process with law firms brings chills down my spine. Let's just leave this stuff private and move on.

 

[krunchykrome]

Originally posted by: Xavier434

Originally posted by: krunchykrome
an LLP leaves more flexibility bewteen profit/loss sharing ratios among partners and has more flexibility to amend the partnership agreement.

Public Accounting firms already receive peer reviews, but if the firm were to go public, can you imagine the SOX complications.

Another point to mention is that a publicly traded company's top priority is to keep shareholders happy. In other words, their bottom line goal is profit. Ethics are thrown out of the window. The public accounting profession's #1 asset is ethics and public perception. Without these, public accounting hold no attestation value. The fundamental purpose of a cpa firm (audit specifically) is to provide a level of assurance that a company's financial statements are free from material mistatement. Every year, public firms go through a process where they evaulate their existing clients, and possibly discontinue a business relationship with many of them if the firm feels as though the company is not a good client (unethical, etc). If the firm was publicly traded, the firms wouldn't go through this process and would continue to retain bad clients, regardless of ethics.

Reading that and applying the same thought process with law firms brings chills down my spine. Let's just leave this stuff private and move on.

yea, seriously

why open a new can of worms....I mean a very big can of worms

 

[JS80]

Originally posted by: krunchykrome
an LLP leaves more flexibility bewteen profit/loss sharing ratios among partners and has more flexibility to amend the partnership agreement.

Public Accounting firms already receive peer reviews, but if the firm were to go public, can you imagine the SOX complications.

Another point to mention is that a publicly traded company's top priority is to keep shareholders happy. In other words, their bottom line goal is profit. Ethics are thrown out of the window. The public accounting profession's #1 asset is ethics and public perception. Without these, public accounting hold no attestation value. The fundamental purpose of a cpa firm (audit specifically) is to provide a level of assurance that a company's financial statements are free from material mistatement. Every year, public firms go through a process where they evaulate their existing clients, and possibly discontinue a business relationship with many of them if the firm feels as though the company is not a good client (unethical, etc). If the firm was publicly traded, the firms wouldn't go through this process and would continue to retain bad clients, regardless of ethics.

This.

/thread

 

[GuitarDaddy]

Due to a rash of lawsuits against CPA firms the AICPA abolished rule 505 in 1990 in an attempt to provide further limitation of liabilities for its members.
Rule 505 had previously prohibitted IACPA members firms from incorporating.

So yes it has been OK for CPA firms to incorporate since 1990, they don't because of the higher tax rates and double taxation of corporations. Although many smaller to mid size firms are now using the LLC structure and choosing to be taxed as a parntership.

Don't know the answer for legal beagles

 

[Injury]

Imagine this:

A person goes on trial and buys stock in the law firm prosecuting them.

I'm sure you can draw your own conclusions about the many things that could happen, but the primary idea is the possible interference of justice.

 

[CPA]

Originally posted by: krunchykrome

Originally posted by: thespeakerbox
Contradicts IRS code

Internal Revenue Code § 448 and § 461 (cross referenced in 448), would forbid any publicly traded US law firm from using the cash method of accounting.

cash method? what is this, a corner convenience store?

cash method versus accrual method.....learn it, live it, love it......wait, aren't you an accountant?

 

[ElFenix]

because we would rather bill you a whole ton of money than have you pay us a pittance in salary

 

[krunchykrome]

Originally posted by: CPA

Originally posted by: krunchykrome

Originally posted by: thespeakerbox
Contradicts IRS code

Internal Revenue Code § 448 and § 461 (cross referenced in 448), would forbid any publicly traded US law firm from using the cash method of accounting.

cash method? what is this, a corner convenience store?

cash method versus accrual method.....learn it, live it, love it......wait, aren't you an accountant?

i understand cash vs accrual. publicy traded companies are required by GAAP to adopt an accrual method.

i think I misinterpreted his post

 

[Special K]

Can law and accounting firms participate in M&A, or is that also forbidden?

 

[krunchykrome]

Originally posted by: Special K
Can law and accounting firms participate in M&A, or is that also forbidden?

yes they can. I know for certain that public accounting firms are always acquiring smaller firms. Many firms do this to expand their expertise by picking up smaller industry-niche firms.

 

[TipsyMcStagger]

I work at a CPA firm so from my perspective, I'd just wonder why a CPA or Law firm would even want to go public (if legally possible, i know states have rules about the % ownership of CPA firms that must be CPA's, I'd assume similar laws for law firms)? Deal with SOX, fights for control with shareholders, No longer a simple splitting of profits between partners. LLP's provide a fair amount of legal protection.

 

[Special K]

Originally posted by: TipsyMcStagger
I work at a CPA firm so from my perspective, I'd just wonder why a CPA or Law firm would even want to go public (if legally possible, i know states have rules about the % ownership of CPA firms that must be CPA's, I'd assume similar laws for law firms)? Deal with SOX, fights for control with shareholders, No longer a simple splitting of profits between partners. LLP's provide a fair amount of legal protection.

I assumed they would do it to raise capital, just like any other company that decides to go public?