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12 • 2015

The Risks Associated With CPAs Handling Incorporations and the Unauthorized Practice Of Law

The Ohio Supreme Court has decided several cases dealing with the issue of accountants engaging in the unauthorized practice of law by preparing documents needed to form a business entity. In a 2003 case,[1] two men operating a power-washing company discussed how best to structure their business with their CPA. The CPA used forms readily available from the Ohio Secretary of State’s office as a baseline to draft articles of organization to establish the business as a limited liability company. He did not, however, have the members execute an operating agreement to govern their relations,[2] which the Court noted was an important aspect of properly forming the company. [3]

After the members had a falling out, one of them consulted an attorney about how to structure the company’s future business transactions. The attorney reviewed the company’s organization papers and discovered that there was no operating agreement in place. Upon learning that the papers had been prepared by a CPA who was not licensed to practice law, the attorney filed a grievance with the Columbus Bar Association. The bar association issued a formal complaint, which was heard by the Ohio Board on the Unauthorized Practice of Law (the “Board”). The Board recommended that the CPA be enjoined from engaging in the unauthorized practice of law.

The Board’s findings were reviewed by the Ohio Supreme Court, which concluded that “[f]or a layperson to draft documents creating a business entity is unquestionably the unauthorized practice of law.”[4] The court rejected the CPA’s argument “that as a CPA he is also capable of competently advising clients in the creation of these documents,” finding that the argument actually made the case against him.[5] The court reasoned that

[w]hile we recognize that certified public accountants perform a valuable function in advising on financial matters in the formation of a company, such as how best to structure a business entity for tax benefits, there are still many remaining issues that require legal analysis in choosing a business structure. This case highlights the dangers when those lines are blurred. In this case, respondent helped his clients choose a business structure, a decision that ordinarily requires a significant amount of legal judgment in addition to tax and other accounting considerations. Clients need to know the legal differences between and formalities of available structures and then be advised according to their best interests, taking into account personal and practical concerns, not just tax consequences. Where there is more than one principal involved in the venture, the existing and potential conflicts also must be assessed. This undertaking is hardly the clerical service that respondent insists he performed[.[6]]

Accordingly, the court enjoined the CPA from “preparing legal documents that constitute the unauthorized practice of law,” and required him to pay the costs and expenses associated with the action.[7]

The court confirmed its reasoning in a similar case decided two years later.[8] The respondents in that case were Roland Wyandt and his company, which provided tax preparation and bookkeeping services. Charging hundreds of dollars of fees, Wyandt advised at least five different clients about the advantages and disadvantages associated with incorporating their businesses, although he sometimes also mentioned partnerships and other business structures. For each corporation, Wyandt then filled out (and may have even filed) basic forms available from the Ohio Secretary of State to establish articles of incorporation and appoint a statutory agent for service of process.

The Miami County Bar Association filed a complaint charging Wyandt and his company with having engaged in the unauthorized practice of law. Somewhat similar to the CPA in the prior case, Wyandt argued that “his knowledge of corporate law, obtained in earning his accounting degree, qualified him to counsel clients as to the legal requirements and implications of the various corporate structures.”[9] The complaint was heard by the Board, which was not impressed with Wyandt’s argument. The Board concluded that his actions constituted the unauthorized practice of law and recommended that he and his company be enjoined from engaging in such practices in the future and that a civil penalty of $20,000, $4,000 for each of the five clients, be imposed against them.

The Ohio Supreme Court agreed that Wyandt had engaged in the unauthorized practice of law. Noting that the practice of law is not limited to appearances in court, but includes giving legal advice and preparing legal instruments and contracts by which legal rights are preserved, the court easily found that “an accountant unlicensed in law engages in the unauthorized practice by drafting documents to create a business entity for a client.”[10] The court supported its decision by reiterating in full its discussion in the Verne case of the distinction between the legal considerations in forming a business and the tax and other accounting considerations.[11] Accordingly, the court enjoined Wyandt and his company from engaging in the unauthorized practice of law, including “the preparation on another’s behalf of legal papers necessary to form a business entity under the laws of Ohio,” and fined them $20,000, as recommended by the Board.[12]

The issue came before the Ohio Supreme Court yet again in 2007.[13] In that case, Ricky Stewart, a CPA, through his accounting firm, provided legal advice as to the propriety of incorporation and then drafted supporting legal documents for filing. Charging between $250 and $650 for his services, Stewart prepared documents to be filed with the Ohio Secretary of State, including articles of incorporation, articles of organization, and certificates of dissolution, for at least 82 business entities. The Dayton Bar Association filed a complaint charging Stewart and his firm with engaging in the unauthorized practice of law by organizing, and in some cases dissolving, companies on behalf of the business owners. The complaint was heard by the Board, which concluded that Stewart and his firm had practiced law in Ohio in violation of licensure requirements, and recommended that they be enjoined from committing further illegal acts and fined $8,200.

The Ohio Supreme Court again agreed with the Board’s findings and recommendations. Citing the earlier cases, the court confirmed that “[a] nonattorney’s advising another person in corporate-structuring strategies and then drawing up the documents to produce incorporated status constitute the unauthorized practice of law.”[14] As such, the court found that Stewart and his firm engaged in the unauthorized practice of law “by advising others on how to establish and protect legal interests through incorporation and preparing documents for filing with the secretary of state[.]”[15] Having so found, the court accepted the Board’s recommendation that Stewart and his firm be enjoined from “(1) advising others on how to establish and protect legal interests through incorporation, (2) preparing documents to form, organize, or dissolve a corporation, and (3) performing all other acts constituting the practice of law.”[16]

Taking up the matter of punishment, the court noted that the Board was authorized to recommend a civil penalty of up to $10,000 per offense based on various factors.[17] Although the court indicated that Stewart had engaged in the unauthorized practice of law at least 82 times and derived great financial benefit as a result, other factors weighed in his favor, including that he acceded to the Board’s authority and agreed to stop giving legal advice and preparing legal documents. As such, the court accepted the Board’s recommendation and imposed a fine of only $100 for each of the 82 offenses, for a total civil penalty of $8,200.

[1]Columbus Bar Ass’n v. Verne, 99 Ohio St. 3d 50, 2003-Ohio-2463, 788 N.E.2d 1064.

[2]See Ohio Rev. Code Ann. § 1705.081.

[3]Columbus Bar Ass’n, 99 Ohio St. 3d 50, 2003-Ohio-2463, 788 N.E.2d 1064, ¶ 2 (written operating agreements, among other things, minimize disputes, prevent fraud, and protect the legitimate expectations of the members).

[4]Id. ¶ 4.


[6]Id. ¶ 5.

[7]Id. ¶ 6.

[8]Miami County Bar Ass’n v. Wyandt & Silvers, Inc., 107 Ohio St. 3d 259, 2005-Ohio-6430, 838 N.E.2d 655.

[9]Id. ¶ 2.

[10]Id. ¶ 11.

[11]Id. ¶ 12.

[12]Id. ¶ 13.

[13]Dayton Bar Ass’n v. Stewart, 116 Ohio St. 3d 289, 2007-Ohio-6461, 878 N.E.2d 628.

[14]Id. ¶ 8.

[15]Id. ¶ 9.

[16]Id. ¶ 38.

[17]Id. ¶ 10