How to workout profit in business

Savvy_Sue

gb12345 wrote: »

Separate legal advice might be a good idea though (particularly if you go for a partnership).

I'd say legal advice was ESSENTIAL, and separate legal advice is likely to be recommended as part of that ...

Pennywise

You all using the same accountant will probably be OK at first, but it's something to keep under review and you'd probably need to start having your own separate accountants and solicitors when you start negotiations about one of you selling out to the others, or changes in your respective/proportional shareholdings.

It's far too easy for an accountant to be swayed by the remaining shareholders if someone is leaving as the accountant will want to keep the remaining shareholders sweet to keep the business, meaning the person leaving may not get the best deal.

Sometimes what's best for one shareholder/partner isn't best for another and it becomes impossible for a single accountant/solicitor to act in the interests of both sides of the deal.

In previous firms I've worked for, I've certainly been put in very uncomfortable positions when the firm has acted for both sides of a buy-out. In one case, a manager was buying the business and our firm acted for both the existing owner and the manager/future owner - I knew some information about the business from the current owner but because of confidentiality, I couldn't tell the manager, who ended up buying it in ignorant bliss and suffered a dramatic fall in sales and profits almost immediately. In another case, there were three partners in a dental practice which was the subject of a takeover bid - for one reason or another, two of the partners would pay no CGT on the sale of their share of the business but the third had a huge CGT bill. There was a different way of structuring the deal (known to the 2 partners with no CGT) but not known to the third with the CGT bill - the alternative would have meant those two ended up with a bit less, and the third with a bit more - but again, due to confidentiality, we couldn't tell the third what was going on and how he was affected far more seriously than the other two. Latest case was one client selling a business to another client - the purchasing client had been given false accounts by the seller, but we couldn't come out and say it because of confidentiality - all we could do was make some strong recommendations to have the seller's accounts and books reviewed with a fine tooth comb - as we tell all such clients - unfortunately they didn't and ended up over-paying. Now that I have my own practice, I make a point of not letting myself be compromised in such a way and refuse to act for both sides of any form of buying/selling transaction - it's a conflict of interest and should be avoided - sadly some firms don't have the same moral compass.

Cpu2007

Thank you pennywise, the conflict of interest is something that I knew would have been an issue, reason why I asked whether one accountant or more should be required.

So the basic procedure could be as follow:
Have the same accountant for all of us when starting the business,have a legal adviser(preferably one for each of us) and then if in future there's someone wanting to join or leave, let them have an accountant and legal adviser for themselves so that they can workout the best way to leave or join the business.