Certified Public Accountants, or CPAs, can choose to work as an employee of a company or start their own firm. Many have chosen to do the latter. If you’re a CPA who’s planning to start your own accountancy corporation, read through this article to learn how to structure a small accounting firm the right way in California.  

What is an Accountancy Corporation?

An accounting firm is a form of a professional corporation. It is legally registered with the California Secretary of State, to engage in the business of providing CPA services in line with the accountancy profession.

What Government Agency Regulates Accounting Firms?

The California Corporation Code § 13401(b) requires all professional corporations to register with the government agency that manages their respective professions. A CPA firm that desires to practice accountancy in California must be approved for licensure by the California Board of Accountancy (CBA) before holding out to the public as an accountancy corporation.

What are the California State Laws that CPA Firms Must Abide by?

All professional accounting corporations must abide by these California State Laws and Codes:

• California Business and Professions Code
• California Code of Regulations
• Corporations Code

Find out more about the laws and codes that apply by jumping to the end section of this article!

 

Steps on How to Structure a Small Accounting Firm in California 

Those who plan to build a CPA practice in California should learn the following: 

Correct Use of Corporate Name for the Accountancy Firm 

The name of the firm must meet the requirements outlined in Section 5060 of the Business and Professions Code (BPC) and section 75.5 of Title 16 of the California Code of Regulations (CCR).  

There are no name restrictions so long as it is not false or misleading. No person or firm may practice public accountancy under any name other than the name under which the person or firm holds a valid permit to practice issued by the board. 

Setting up the Bylaws in the Company  

Bylaws, which are created at the start of forming any corporation are necessary for a business to function efficiently. An accounting firm’s bylaws should include the rules and guidelines in addressing issues, such as the responsibilities of the board of directors, the qualifications for stockholders, and the schedules of shareholder meetings.  

Who can be a Shareholder, Director, and Officer in an Accountancy Corporation?   

An accountancy corporation must have at least one shareholder with an active California CPA/PA license to obtain a Certificate of Registration from the CBA. Under BPC section 5154, except as provided for in BPC section 5079 and CORP section 13403, each director, shareholder, and officer must hold a valid license to practice public accountancy. The director of an accountancy firm must be a licensed shareholder.  

A corporation also may have a non-licensee shareholder, vice-president, or secretary (officer). However, a non-licensee may not be both a shareholder and an officer. A non-licensee cannot be a director of the firm. 

The list of shareholders, directors, and officers must be completed on the application for licensure as an accountancy corporation. Pursuant to BPC section 5158, each office of an accountancy corporation engaged in the practice of public accountancy in this state shall be managed by a certified public accountant (CPA) or public accountant (PA). 

Non-Licensee Owners

If the non-licensee is a shareholder, the non-licensee must materially participate in the business of the firm. Non-licensees must comprise a minority of owners. The only exception is that a firm with two shareholders may have one shareholder who is a non-licensee.

At initial licensure and at license renewal, CCR, Title 16, section 51 requires firms with non-licensee owners to certify that any non-licensee owner with his or her principal place of business in California has been informed of the rules of professional conduct applicable to accountancy firms. A declaration is required to be signed by a licensed shareholder of the firm upon application for firm registration.

A non-licensee may not be both a shareholder and an officer. A non-licensee cannot be a director of the firm.

Get those Bylaws and Stock Certificates Legally Compliant

Restrictions on stock ownership must be clearly set forth on each share certificate and in corporate by-laws, or the corporate by-laws and the share certificates of an accountancy corporation shall contain an appropriate passage or legend referring to the restrictions set forth in Sections 13406 and 13407 of the Corporations Code.

For an accountancy corporation that has non-licensee owners, the conditions and restrictions on non-licensee ownership must also be clearly set forth on each share certificate issued to a non-licensee and in the corporate by-laws of the accountancy corporation.

Licensing of a Small Accounting Firm Structure in California   

An accountancy corporation wishing to practice accountancy in California is required to be approved for licensure by the California Board of Accountancy (CBA) before practicing or holding out to the public as an accountancy corporation. 

Click to check out the “Accountancy Corporation Check Sheet”

Articles of Incorporation must be submitted with the application. The articles must indicate incorporation as a professional accountancy corporation, not a general corporation. The articles must be endorsed and approved by the California Secretary of State. Additionally, the name on the Articles of Incorporation must match the name on the application submitted for licensure as an accountancy corporation, as well as on all documentation submitted. 

Information on filing the Articles of Incorporation is available on the California Secretary of State’s website at www.sos.ca.gov. A business incorporated in California is subject to California corporation franchise tax requirements. Information regarding franchise tax requirements can be obtained from the California Franchise Tax Board’s website at www.ftb.ca.gov. 

The application and initial licensee fees are $270. A check, money order, or cashier’s check made payable to the CBA must accompany the application. 

License Renewal Cycle for Accountancy Corporations 

An accountancy corporation must renew its license every two years to retain practice rights. The expiration date is based on the month and year the application was originally approved. If approved in an even-numbered year, the license will expire each even-numbered year on the last day of the month in which it was originally approved. If approved in an odd-numbered year, the license will expire each odd-numbered year on the last day of the month in which it was originally approved. 

The CBA mails renewal forms with instructions approximately two months before the firm’s license expiration date. If your renewal form is not completed, mailed, and postmarked by the license expiration date, your firm’s practice rights cease until all deficiencies are corrected and the license is renewed. 

Failure to renew within five years of expiration will result in the cancellation of a corporation’s license. A canceled license cannot be renewed, reinstated, or restored. 

If a corporation’s license has been canceled, the shareholder(s) must reapply and be approved for licensure before practicing or holding out to the public as an accountancy corporation. 

Full California Law

 

Start an Accounting Firm – Frequently Asked Questions

Q: What is the process for starting an accounting business in California?

A: To start an accounting business in California, you need to follow these steps:

1. Obtain the necessary education or experience.
2. Obtain the required licenses and certifications
3. Decide on your business structure.
4. Obtain necessary permits and licenses.
5. Obtain business insurance.
6. Set up a business bank account and accounting system.
7. Develop a marketing and business plan.
8. Network and build relationships.

Remember to consult with an attorney, accountant, or business advisor for personalized guidance and advice specific to your situation. and the requirements of your accounting business in California.

Q: What are the different business structures I can choose from for my accounting firm?

A: The different business structures you can choose from for your accounting firm are sole proprietorship, partnership, corporation.

Q: What are the requirements to become a Certified Public Accountant (CPA) in California?

A: To become a CPA in California, you need to meet the educational requirements, pass the Uniform CPA Exam, and fulfill the experience requirement.

Q: What are the advantages of incorporating my accounting firm?

A: The advantages of incorporating your accounting firm include liability protection, potential tax benefits, and enhanced credibility.

Q: What is the importance of creating a business plan for my accounting firm?

A: Creating a business plan for your accounting firm helps you define your goals, identify your target market, and plan your business strategies.

Q: What are the required documents to file when incorporating my accounting firm in California?

A: Some of the required documents to file when incorporating your accounting firm in California include the Articles of Incorporation and the Statement of Information.

Q: How can I determine the right specialization for my accounting business?

A: You can determine the right specialization for your accounting business by considering your expertise, market demand, and potential client base.

Q: What licenses and permits do I need to operate an accounting firm in California?

A: The licenses and permits you need to operate an accounting firm in California may include a business license and a professional license.

Q: Should I open a separate business bank account for my accounting firm?

A: Yes, it is recommended to open a separate business bank account for your accounting firm to maintain proper financial records and separate personal and business finances.

Q: What are the common business entities chosen by small business owners for their accounting firms?

A: The common business entities chosen by small business owners for their accounting firms are sole proprietorship, and the professional accountancy corporation.

Form a Small Accounting Firm Structure in California with the Help of a Corporate Lawyer

These tips on how to start a CPA firm is a general guideline of a very complex process. There are many minute details in incorporating an accountancy corporation that needs to be done right, otherwise, numerous problems could arise in the future. Avoid these corporate and legal problems in your company by making sure you structure your small accounting firm the right way. To start an accountancy practice correctly, you need the help of a trustworthy business lawyer. We, at Incorporation Attorney, are ready to help you every step of the way! Give us a call today at +1 (714) 634-4838!