Video Summary
In this transcript from a video by Andy Gale from Gale & Vallance in Orange County, he explains how CPAs can avoid incorporation mistakes in California when helping their clients with corporate records. Many CPAs unknowingly create costly compliance issues by preparing records incorrectly or overlooking essential requirements. Andy also introduces the Corporate Records Review Program, a service designed to help accountants spot and correct errors before they become serious problems.
To learn more about how CPAs can avoid incorporation mistakes in California and protect their clients, check out our detailed article on CPA incorporation rules.
Please note, this video does not constitute legal advice, and we recommend consulting with a qualified attorney about your specific case.
00:00:02 – Meeting with a CPA
I had a meeting with a CPA last week.
He had formed about 30 corporations for his accounting clients.
Then he ran across the articles that I’d written and watched a few of my video tapes, and he started to worry.
He wasn’t absolutely certain he had completed all of the corporate formalities correctly.
And he didn’t want to find out that he had done it wrong either mid audit or mid lawsuit.
00:00:41 – Cost of Fixing Mistakes
He told me that he realized it was going to cost him a small fortune to perhaps fix all of the problems that had been created, but he realized how that was going to be better than the alternative.
He was prepared to do whatever was necessary to make certain that his clients were taken care of.
00:00:58 – Cutting Corners in Business Formation
Now it’s not uncommon, in my experience, when I meet people that are starting businesses that they want to try and cut every corner to save every expense that they can when getting their business off the ground.
And a lot of times what they do is they put pressure on their trusted advisers, like their CPAs or their tax accountants, to help them save the cost of legal fees in getting the business started.
So on occasion, CPAs and tax accountants will fall into the trap of actually doing legal work, thinking, “It’s just a few forms, and I can fill it out.”
Or, “I’ll have my secretary use an incorporation service like legal zoom, or something like that,” and they create these entities thinking, “Well it hasn’t run into a problem yet, and so this one will probably be okay too.”
Of course it’s okay until it is a problem, and then you have a tsunami on your hands, not some small problem that you can easily fix.
00:01:53 – Problems with Corporate Records
Now when we receive these corporate record books to look at, it’s very common that they’re incomplete.
They filled out forms that they didn’t need, or they filled out forms they need incorrectly.
Or maybe they haven’t filled out forms that they should have filled out and the documents aren’t assembled in the proper order.
They don’t have the complete set of corporate records which one would expect.
00:02:14 – Risks During Audits or Lawsuits
What happens when they get themselves involved in an audit or a lawsuit?
They go into complete panic mode.
And a lot of times, the CPAs will say, “Well just quick, type up some minutes or type up some paperwork, and hopefully that will get us over the curb.”
This is not only bad advice, but now they have compounded the problem.
00:02:37 – The Question: “What Do I Do Now?”
“So what do I do now?” he asked me.
What I explained to him is that it’s not uncommon at all for people to try and do the incorporation process themselves, because they’ve read on the internet that it’s very simple, or there are a lot of these do-it-yourself services that have spent a lot of marketing money online.
Then when you look for incorporation services, page after page of the Google research findings show you that you can do it for fifty or one-hundred bucks, and they fall into the trap.
And they don’t know what to do once they’ve screwed it all up.
00:03:12 – Corporate Records Review Program
We’ve created a program in our office.
Which we call our Corporate Record Review.
It will allow us to help them go through their corporate records, look to see what’s there, look to see what’s missing, look to see what needs to be corrected, and then we can kind of guide them through that process to make sure all of the things that should have been done have been done.
So I indicated to him that the easiest thing for him to do would be to allow us to look at each one of the corporate record books that he had created.
We would run it through our 27-point checklist to make sure that all of the things that should have been done for the client and haven’t been done can be completed now before there’s a problem.
00:03:57 – Concern About the Cost
So he said, “Just figuring out the problem is going to cost me a fortune. What do I do about that?”
I assured him this is very simple.
I said I would help him go through all of his record books.
I would do the review.
I would tell him whether or not they were complete and perfect, in which case there is no more work to be done.
Or that we could identify what the problems were.
I could give them a budget to fix it.
Then, we could explain to the client that some extra work needs to be done on their corporation to make sure they have that corporate veil liability protection in place.
We could step in and help him help them make sure that their corporate records are absolutely perfect.
00:04:37 – No-Charge Review Offer
I explained to him that I would do this at no charge to him.
At no charge to the client.
It was just a function of knowing better would allow him to do better for his clients and knowing better would allow his clients to do better for themselves.
00:04:53 – Offer to Accountants
So here’s my offer to you.
If you’re an accountant.
If you have done the legal work of forming a corporation for your client.
If you have doubts whether or not you did it correctly, or if your secretary or assistant did it for you and you’re concerned whether or not they did it correctly.
Or, if your concerned whether or not the records that should have been done on a year to year basis have been done correctly, I’ll tell you.
I look at this as though we are partners.
I’m a professional in the legal world.
You’re a professional in the tax world.
And both of us need to get together and help one another so we can really help out our clients.
This is completely without risk to you.
And you will know once we are done meeting and going over your files whether or not you’re in a good position or not a good position and we can now take the steps to correct that.
Conclusion: How CPAs Can Avoid Incorporation Mistakes in California
By learning the most common mistakes and how to avoid them, CPAs can better protect their clients and maintain compliance with California business laws. The Corporate Records Review Program from Gale & Vallance is an additional resource available to accountants who want to strengthen their services and reduce risk. With the right legal guidance, CPAs can ensure their clients’ corporations are set up and maintained properly.
