As set
out in earlier posts, and with thanks to the Television Education Network,
today’s post addresses the issue of ‘Why would a professional partnership
incorporate?’. If you would like a link to the video please let me know.
As usual, a transcript of the
presentation for those that cannot (or choose not) to listen to the
presentation is below –
The number of answers to this
question are probably only limited to the number of professional practices
there are out there. There are a range of reasons.
Tax is one and we keep coming back
to that, but that can sometimes be in the eye of the beholder from that
perspective.
We're seeing, certainly from a risk
management perspective and asset protection and the credit crunch and
everything else that’s going on and the changes to the bankruptcy rules in the
recent past mean that everyone is much more aware that when things go wrong,
it's very attractive to have your liability limited.
Obviously, that’s probably the
biggest advantage of an incorporated model.
There's also I guess the sense from
people talking about retaining key staff and the skills shortage that many
professional organisations are facing these days that it tends to make sharing
of equity a lot easier if you've got a true corporate model.
That can sometimes be as simple
from a perception viewpoint that a lot of times staff or key employees are much
more aligned and find it much easier to understand a company setup as opposed
to some sort of fancy trust arrangement or a service trust arrangement for that
matter.
Certainly, the transaction costs
side of things, in terms of the hard costs, particularly stamp duty, in most
states now, the concept of having to pay stamp duty on the transfer of listed
shares is basically a thing of the past. So that can be very attractive
to people.
The last main reason and perhaps
this is touching on the perception side of it again, I think the corporate
model from a governance perspective, it tends to be a lot easier for people to
understand. We've done a lot of work in this area and it is interesting
that by becoming a director, and by having a board and by having shareholders
and all of these sorts of more formal things, even though the deck chairs
haven't really changed in the organisation, there seems to be an air of
governance around the place that just wasn't there while they remained as a
partnership.
Until next week.
