NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A9771B
SPONSOR: Ortiz TITLE OF BILL: An act to amend the education law, the business corpo-
ration law, the partnership law and the limited liability company law,
in relation to certified public accountants
PURPOSE:
This bill would amend the education law to allow non-CPAs to be minority
owners of CPA firms, consistent with 49 other states and jurisdictions.
SUMMARY OF PROVISIONS:
Section 7408 of the education law is amended to authorize firms estab-
lished pursuant to the business corporation, partnership and limited
liability company laws to register with the State Education Department.
Section 1503 of the business corporation law is amended to authorize
non-CPA ownership of a firm provided:
*Licensed CPAs must hold up to a simple majority of the ownership;
*A licensed CPA or CPA with practice privileges must be responsible for
registration of the firm;
*The partner/owner in charge of attest services must be a licensed CPA;
*All non-CPA owners must be actively engaged in working for the firm or
an affiliated entity; and
*Passive ownership is not permitted
Section 1507 of the business corporation law is amended to permit the
issuance of shares provided at least 51 percent of the outstanding
shares of stock of the corporation are owned by certified public
accountants, at least 51 percent of the directors and officers are CPAs,
and the president, chairperson of the board and CEO are CPAs.
Section 1508 of the business corporation law is amended to permit non-
licensees to be directors and officers of firms
Section 1509 of the business corporation law is amended to clarify
provisions regarding the disqualification of shareholders, directors,
officers and employees in a professional service corporation incorpo-
rated to allow non-CPA ownership.
Section 1511 of the business corporation law is amended to require the
redemption or purchase of shares within 30 days in the event that a
non-licensed professional shareholder is terminated, unless such shares
are transferred or sold to another employee within the corporation.
Section 1512 of the business corporation law is amended to provide that
the name of the accounting firms established as professional service
corporations may only contain words which could be used in the name of a
partnership practicing accounting at the time of incorporation.
Section 1514 is amended to require that firms established as profes-
sional service corporations furnish statements to the State Education
Department with relevant information for each shareholder, director and
officer.
Section 1525 of the business corporation law is amended to authorize the
incorporation of accounting firms with non-CPA owners as foreign profes-
sional service corporations.
Section 2 of the partnership law is amended to authorize non-CPAs to
become partners of a professional partnership formed to provide accoun-
tancy services.
Section 121-1500 of the partnership law is amended to allow non-CPAs to
become partners in a limited liability partnership formed to provide
accountancy services.
Section 121-1502 of the partnership law is amended to allow non-CPAs to
become partners in a foreign limited liability partnership formed to
provide accountancy services.
Section 121-101 of the partnership law is amended to allow non-CPAs to
become partners in a limited partnership or domestic limited partnership
formed to provide accountancy services.
Section 1207 of the limited liability company law is amended to allow
non-CPAs to become members of a professional service limited liability
company formed to provide accountancy services
Section 1301 of the limited liability company law is amended to allow
non-CPAs to become members of a foreign professional services limited
liability company formed to provide accountancy services.
JUSTIFICATION:
By enacting this legislation, New York would be joining 49 other states
and jurisdictions in allowing for non-CPA ownership of firms. In 2012,
Connecticut enacted similar legislation, leaving New York as the last
state in the region without this proposal in law. The provisions of the
legislation are consistent with and modeled after sections provided in
the Uniform Accountancy Act (UAA)
This legislation is needed so that New York CPA firms can better serve
New York clients As global competition, the complexity of business
structures and rapid technological breakthroughs continue to redefine
commerce, accounting firms of all sizes, use the services of non-CPAs to
help them navigate the dynamic terrain of today's business environment.
These non-CPA professionals are critically important to the effective-
ness of a CPA practice. In today's world, firms want to provide the best
quality audits and this very often requires the skills of non-CPAs, such
as systems engineers and other IT professionals, valuation specialists,
actuaries, industry experts and others. Clients have come to expect that
these specialists will participate in the CPA firm's work and the audit
work product is better because of it.
CPA firm work, however, remains just that, the work of a CPA firm. This
legislation limits the percentage of allowed non-CPA firm owners, ensur-
ing that non-licensees can only ever have a minority interest in the
firm Further, enacting this legislation will even the playing field so
that New York CPA firms will be permitted to have the same options to
diversity their firm resources as firms in neighboring states who come
in to New York to practice under mobility. In addition, smaller CPA
firms will find it easier to have a succession plan as they transition
to the next generation.
Many clients now expect that a CPA firm will employ non-CPAs with
significant expertise in specialized areas such as information technolo-
gy. Therefore, CPA firms have a real need to attract and retain "the
best and brightest" in these areas and to incorporate these individuals
into the firm's culture The vast majority of states and jurisdictions
have recognized this need and have implemented one method of doing this
which is to give an individual an ownership stake in the firm so that
all of these individuals have a shared interest in the long-term viabil-
ity of the firm. This bill will benefit firms, the profession and the
state by attracting additional business and job opportunities.
LEGISLATIVE HISTORY:
This is a new bill, however, current State Education Department regu-
lations already allow for profit sharing with non-CPA's in a CPA firm of
up to 35%.
FISCAL IMPLICATIONS:
None.
EFFECTIVE DATE:
Immediately.
