How to buy an accounting practice in Newfoundland and Labrador: licences, ownership rules and what transfers

Newfoundland and Labrador writes its accounting-practice ownership rule into the statute. The Chartered Professional Accountants and Public Accountants Act, SNL 2014, c. C-10.1, refers to the Association of Chartered Professional Accountants of Newfoundland and Labrador, which calls itself CPA Newfoundland and Labrador (CPANL here), and it says directly what a corporation must look like before it can provide a chartered professional accountant’s services or a public accountant’s services. For a buyer, that makes the structure question concrete early: a purchase of voting shares by someone who is not a member of the association would not fit the Act’s registration test. This guide takes the Act’s main steps in turn. It sits beside the national guide to buying an accounting practice in Canada.

Two kinds of corporation, two approvals

The Act distinguishes between services of a chartered professional accountant and those of a public accountant. A corporation may not provide the services of a chartered professional accountant unless it is registered under section 18 and holds a certificate under section 19. It may not provide the services of a public accountant unless it is registered and holds a licence under that section. One or more members who are all licensed as public accountants may incorporate a corporation to provide public accountant services. Check which kind of work the practice does and which approval, certificate or licence, it actually holds.

Who may own the voting shares

This is the Act’s central ownership rule. To register a corporation that provides chartered professional accountant services, section 18 requires that all the voting shares be beneficially owned by, and registered in the name of, one or more members of the association, with no restriction on each member’s right to vote as he or she wishes. Non-voting shares must be owned by a natural person. All directors must be members of the association, and no agreement may restrict the directors’ powers to manage the business and affairs of the corporation in relation to those services. In Newfoundland and Labrador the Act itself sets this test; this guide does not describe any other province’s rules.

The tighter test for public accountant work

If the corporation provides the services of a public accountant, the Act applies a stricter version. All the voting shares must be beneficially owned by, and registered in the name of, members licensed as public accountants under section 10, and the directors must be members who are licensed as public accountants. A buyer cannot assume that being a member is enough. Ask the seller whether the practice’s public accountant work runs through its own corporation, and confirm that every shareholder and director holds the licence the Act names. CPANL publishes directories of licensed public accountants, licensed professional corporations and firms, which let you check the seller’s answers.

Death, bankruptcy and the 180-day holdover

The Act recognises that shares can pass to someone who is not a member. Despite the ownership rule, the voting shares of a professional corporation may be held for no longer than 180 days, or a longer period where the registrar permits, by an executor or administrator of a deceased member’s estate, or by a trustee in bankruptcy discharging his or her duties as trustee. The holdover is a time-limited bridge for those two cases, not a route for a buyer to hold shares while qualifying. Ask whether the practice has ever relied on it, and when the period ends.

Revocation after closing

The board of the association may revoke a certificate or licence issued under section 19 where the professional corporation ceases to meet a requirement for registration under the Act, where it contravenes the Act or the regulations, or where a member is disciplined in respect of professional services performed for the corporation. A closing that changes a shareholder or director can therefore threaten the approval that lets the corporation practise. Ask CPANL before closing how it would view the proposed shareholders and directors, and keep the answer on file. An asset purchase into a corporation you register yourself is another route to discuss with a lawyer, because registration is tied to the corporation.

What to ask the seller for

BDC notes that due diligence gives information on a target’s finances, prospects and legal issues, and here the legal issues start with the Act’s tests. The Canada Revenue Agency’s guidance for selling a business is a separate, federal track.

• The corporation’s registration under section 18 and its certificate or licence under section 19, with dates.
• The share register and director list, showing each holder’s membership and, for public accountant work, licence status.
• Any agreement that restricts how members vote or how directors manage the corporation, since the Act speaks to both.
• Any estate or bankruptcy event involving a shareholder, and the registrar’s permission if the 180 days were extended.
• The corporation’s entry in the CPANL directories of licensed public accountants, professional corporations and firms.

For context on how the ownership rules compare for another profession in this province, see professional corporation ownership rules in Newfoundland and Labrador, and browse accounting practices for sale on Deavo.