Tax Guru – Ker$tetter Letter

LLP Protection

I’m frequently asked why my firm isn’t set up as an LLP or LLC, as are all of the Big 5 (soon to be 4) CPA firms. If they are doing that, it must be the way to go. It’s a simple apples & oranges scenario. A world-wide organization with literally thousands of partners is a completely different entity than a small local practice. Without a special form of liability protection, the actions of one partner could actually cause every partner to lose their life savings and everything they own. This happened in the early 1980s, when lawsuits from crumbling savings & loans and real estate projects destroyed several CPA firms and the personal finances of their partners. LLPs and LLCs were created and became popular after that.

With Arthur Andersen imploding, the partners are going to lose their capital in the firm. However, they will also get the chance to see if the LLP structure will be able to do its job and protect their other assets from seizure. Today’s Wall Street Journal has a good explanation of this situation.

KMK