Growth of CA Firms through Networking & Merger
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GROWTH OF CA FIRMS THROUGH
N
ETWORKING &
M
ERGER
CA ANKUR KUMAR GUPTA
FCA, CS, B.Com, FAFD (ICAI)
1
T
OTAL
M
EMBERS
AS
ON
1
ST
J
UNE
2022
IS
358524
2
NUMBER
OF
PARTNERS
BASED
FIRM
AS
ON
1 J
UNE
22
3
P
OINTS
FOR
D
ISCUSSION
:
Current Trends of Practice
Recent Trends in Networking i.e. Merger/
Network
Salient features of Networking
Framework of Internal byelaws of
Different Models
4
T
HE
G
UIDELINES
FOR
N
ETWORKING
OF
I
NDIAN
CA
FIRMS
, 2021
Over the years, our Members have adopted different
mode of practice:
1.
Practice in Individual Name
2.
Practice as a Sole Proprietorship Firm
3.
Practice as a Partnership / LLP Firm
4.
Merger of two or more firms
5.
Network firms
(All the above forms of practice are recognized by the
ICAI.)
5
C
URRENT
T
RENDS
OF
P
RACTICE
:
Major CA firms are Small Size Firms
A large number of firms have confined
their practice to traditional audit and
taxation work i.e. Income Tax Audit/
GST Compliance work.
Major CA Firms are not registered
under GST (Showing Receipts < 20
Lakhs)
6
B
ARRIER
OF
N
ETWORKING
/
MERGER
:
Members have attachment with their firm name
and do not want to go for Merger or Network due to
fear of loss of identity.
Many firms have audits allotted through the ICAI-
PDC empanelment process.
Network cannot take up assignment in its own
name.
Network is not recognized by Appointing
Authorities.
Confusion as to under which legislation, a network
should be registered.
7
T
HE
G
UIDELINES
FOR
N
ETWORKING
OF
I
NDIAN
CA
FIRMS
, 2021
The Council of ICAI issued Network
Guidelines first time in the year
2005
and
thereafter, the same was revised by the
Council in the year
2011
only close to 100
networks could get registered with ICAI as on
date till 2021.
8
W
HY
G
UIDELINES
R
EVISE
IN
2021:
To
protect
the professional practice of the small and
medium firms and also their
identity.
To enable the Indian CA firms to develop a
Sound
Network
of Firms after a gestation period, move
towards allowing
foreign firms
to join the Indian CA
networks.
When
client
grows bigger, they tend to switch over
to a
larger firm
with an expectation that a larger
firm will better cater to the diversified and growing
needs.
Firms that have ventured into
newer areas
of
practice have found success and have been able to
scale up
9
Firms that have
developed expertise
or
specialization have prospered
Firms that have networked and formed a
larger
structure
have by and large scaled up.
Technology
is gradually replacing human
intervention.
Competition from other professionals has been a
perennial challenge
Merger of public sector banks and consequent
reduction in number of branches
Increase of tax audit limits, etc.
10
O
PTIONS
OFFERED
TO
M
EMBERS
:
Form LLP’s so as to overcome the limitation of
number of partners.
Merge so as to form a larger structure, with a
provision to demerge within 5 years, if merger is not
meeting the objective;
Establish multidisciplinary firms, working together
with other professionals such as Cost Accountants,
Company Secretaries, Advocates, Engineers,
Architects and Actuaries
Form Network with other firm(s).
11
12
13
The moral of the Story is that
Slow and steady wins the race.
THE STORY DOESN’T END HERE
There are few more interesting things…..it continues
as follows…… The hare was disappointed at
losing
the
race and he did some soul-searching. He realized that
he’d lost the race only because he had been
overconfident, careless, and lax. If he had not taken
things for granted, there’s no way the tortoise could
have beaten him. So he challenged the tortoise to
another race.
The tortoise agreed. This time, the hare went all out
and ran without stopping from start to finish. He won
by several miles.
14
15
Fast and consistent will always beat the
slow and steady.
It’s good to be slow and steady; but it’s
better to be fast and reliable.
THE STORY DOESN’T END HERE
The tortoise did some thinking this time and
realized that there’s no way it can beat the hare in a
race the way it was currently formatted. It thought
for a while and then challenged the hare to another
race, but on a slightly different route. The hare
agreed. They started off. In keeping with his self-
made commitment to be consistently fast, the hare
took off and ran at top speed until he came to a
broad river. The finishing line was a couple of
kilometers on the other side of the river. The hare
sat there wondering what to do. In the meantime,
the tortoise trundled along, got into the river, swam
to the opposite bank, continued walking, and
finished the race.
16
17
“First identify your core competency and
then change the playing field to suit
your core competency.”
THE STORY STILL HASN’T ENDED
The hare and the tortoise, by this time, had
become pretty good friends and they did some
thinking together. Both realized that the last
race could have been run much better. So they
decided to do the last race again but to run as a
team this time. They started off, and this time
the hare carried the tortoise till the riverbank.
There, the tortoise took over and swam across
with the hare on his back. On the opposite bank,
the hare again carried the tortoise and they
reached the finishing line together. They both felt
a greater sense of satisfaction than they’d felt
earlier.
18
19
“It’s good to be individually brilliant and to have strong
core competencies;
but unless you’re able to work in a team and harness
each other’s core competencies,
you’ll always perform below par because there will
always be situations at which you’ll do poorly and
someone else does well
N
EW
TYPE
OF
N
ETWORKING
:
Models of networking
Alliance
Networking
Lead Firm
Merger
20
ALLIANCE
Different firms
coming
together to form an Alliance
with a
new name
of Alliance
and
continuing
to practice
independently
and can
showcase as an Alliance to
the world.
21
N
ETWORKING
Different firms coming together to
form a Network with a new Network
name and practicing in the name of
firms belonging to Network Subject
to internal integration agreement.
They can Showcase their combined
strength
22
L
EAD
FIRM
Different firms coming together to form a
Network by ways of an internal
agreement recognizing one of the firms as
the lead firm.
This lead firm will bid for professional
work on the basis of the combined
strength and resources of the Network
firms.
23
DIFFERENT
MODELS
24
25
26
S
ALIENT
FEATURE
OF
N
ETWORKING
:
Firms might need to have
detailed knowledge of other firms
to make up their mind as
to with which firm they will go for Alliance/ Networking. Therefore,
data of firms
will
be made available in the
Self Service Portal
for the members to view and take
informed decision.
Any firm of Chartered Accountants can become a part of
any one Alliance or any one
Network
. If it intends to become part of one Alliance, it cannot become part of a
Network, and vice versa.
Alliance/ Network will be permitted
as joint ventures for specific assignments
.
Documents such as deeds, MOUs, forms can be
signed by the Managing Partner
of
each of the member-firms and need not be signed by all partners.
Only firms and LLPs can become member-firms in Alliance/ Network.
Individual
practitioners are not permitted
to be part of Alliance/ Network.
Every agreement, bye-law, MOUs, by whatever name called, must be
filed with ICAI
,
without which registration will not be given.
The legal status of Alliance/ Network can be that of
AOP
as recognized by tax laws.
Alliance/ Network may
open bank accounts
in its own name, obtain
PAN and GST
registration.
Alliance/ Network can take up
non-attest assignments
in its own name, if work is so
assigned.
Alliance/ Network may prepare
a common balance sheet
and get the same audited.
Alliance/ Network can have
website
of its own. Appropriate guidelines will be
prepared by Ethical Standards Board of ICAI
27
N
AME
OF
A
LLIANCE
/
NETWORK
:
Name of Alliance/ Network should resemble name of
member-firms or a combination of acronym.
Alliance/ Network should not bear the name of God/
Goddess/ deity or which has no relationship with
name of member-firms.
Descriptive names will not be allowed.
Names which smack of publicity will not be allowed.
Names which resemble any of the existing firms or
network will not be allowed.
In case of Brand name, it should be owned only by
Indian citizen who is resident in India.
28
F
RAMEWORK
OF
I
NTERNAL
BYELAWS
OF
D
IFFERENT
M
ODELS
A Alliance arrangement, may include the following
Administration of the Alliance
Dispute settlement procedures through arbitration and conciliation and assumption of liabilities
Resource sharing arrangements
A Networking arrangement, may include the following
Appointment of a Managing Committee, from among the managing partners of the member firms of the
Network and the terms and conditions under which it should function.
The minimum and maximum number of members of the Managing Committee shall also be agreed upon.
Administration of the Network
Contribution of membership fees to meet the cost of the administration of the Network.
Identifying a partner of any of the member firms of the Network to be responsible for the administration of
the Network
Dispute settlement procedures through arbitration and conciliation and assumption of liabilities
Development of training materials for members of the Network
Development and maintenance of data bases relevant for different types of assignments
Library
Appointment of a technical director to whom references can be made
Development of software and tools for the use of member firms
Resource sharing arrangements
29
L
EAD
F
IRM
N
ETWORK
:
Appointment of one of the firms as the Lead
Firm to act as a facilitator on behalf of the
member-firms of the Network.
The same may be agreed to by the member-
firms by way of an internal agreement, a copy of
which will have to be filed with the ICAI.
The constituent firms will be at liberty to choose
a different constituent firm as the Lead firm to
represent the Network, depending upon the
specialism and expertise required for a
particular assignment.
30
R
ULE
OF
M
ERGER
AND
D
EMERGER
:
Form-E to be filed within 30 days from date of agreement.
Reconstituted Partnership Deed to be filed with Registrar of Firms.
Demerger terms & conditions can be mentioned in Merger
Agreement itself.
Not less than 75% of Continuing Partners can file Form-F for
Demerger of Firm. (Within 5 Years of Merger)
Notice to existing Partners must be given with Form-F
Remaining Erstwhile Partners can continue with a New Agreement
of Partnership.
Demerged Firm is entitled to use Old Firm Name existing at time of
Merger. Experience shall be counted from Original Date of
Formation.
In case of Change in Firm Name, Add (Formerly Known As M/s
______)
31
32
CA ANKUR KUMAR GUPTA
Chartered Accountants
7615999963
caankurkumargupta@gmail.com
This document discusses the growth and trends of CA firms in India, focusing on networking, merger, and current practices. It highlights the total number of members, types of firm partnerships, guidelines for networking, current trends in practice, barriers to networking/merger, and the 2021 guidelines for Indian CA firms. The content sheds light on the challenges and opportunities for CA firms in enhancing collaboration and expanding their operations through strategic partnerships and mergers.
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Presentation Transcript
GROWTH OF CA FIRMS THROUGH NETWORKING & MERGER 1 CA ANKUR KUMAR GUPTA FCA, CS, B.Com, FAFD (ICAI)
TOTAL MEMBERS ASON 1ST JUNE 2022 IS 358524 Total Members 358524 FCA 109439 ACA 249085 COP 62319 COP 93414 No COP 186766 No COP 16025 2
NUMBEROFPARTNERSBASEDFIRMASON 1 JUNE 22 2%0% Firms 93162 0% 0% 0% 0% Proprietorship- 67524 2-5 Partners- 23543 25% 6-10 Partners- 1654 11-15 Partners- 265 16-20 Partners- 72 21-30 Partners- 32 73% 31-50 Partners- 12 3 51 & Above Partners- 10
POINTSFOR DISCUSSION: Current Trends of Practice Recent Trends in Networking i.e. Merger/ Network Salient features of Networking Framework of Internal byelaws of Different Models 4
THE GUIDELINESFOR NETWORKINGOF INDIAN CA FIRMS, 2021 Over the years, our Members have adopted different mode of practice: Practice in Individual Name Practice as a Sole Proprietorship Firm Practice as a Partnership / LLP Firm Merger of two or more firms Network firms 1. 2. 3. 4. 5. (All the above forms of practice are recognized by the ICAI.) 5
CURRENT TRENDSOF PRACTICE: Major CA firms are Small Size Firms A large number of firms have confined their practice to traditional audit and taxation work i.e. Income Tax Audit/ GST Compliance work. Major CA Firms are not registered under GST (Showing Receipts < 20 Lakhs) 6
BARRIEROF NETWORKING / MERGER: Members have attachment with their firm name and do not want to go for Merger or Network due to fear of loss of identity. Many firms have audits allotted through the ICAI- PDC empanelment process. Network cannot take up assignment in its own name. Network is not recognized Authorities. Confusion as to under which legislation, a network should be registered. by Appointing 7
THE GUIDELINESFOR NETWORKINGOF INDIAN CA FIRMS, 2021 The Guidelines first time in the year 2005 and thereafter, the same was revised by the Council in the year 2011 only close to 100 networks could get registered with ICAI as on date till 2021. Council of ICAI issued Network 8
WHY GUIDELINES REVISEIN 2021: To protect the professional practice of the small and medium firms and also their identity. To enable the Indian CA firms to develop a Sound Network of Firms after a gestation period, move towards allowing foreign firms to join the Indian CA networks. When client grows bigger, they tend to switch over to a larger firm with an expectation that a larger firm will better cater to the diversified and growing needs. Firms that have ventured into newer areas of practice have found success and have been able to scale up 9
Firms specialization have prospered Firms that have networked and formed a larger structure have by and large scaled up. Technology is gradually intervention. Competition from other professionals has been a perennial challenge Merger of public sector banks and consequent reduction in number of branches Increase of tax audit limits, etc. that have developed expertise or replacing human 10
OPTIONSOFFEREDTO MEMBERS: Form LLP s so as to overcome the limitation of number of partners. Merge so as to form a larger structure, with a provision to demerge within 5 years, if merger is not meeting the objective; Establish multidisciplinary firms, working together with other professionals such as Cost Accountants, Company Secretaries, Architects and Actuaries Form Network with other firm(s). Advocates, Engineers, 11
The moral of the Story is that Slow and steady wins the race. THE STORY DOESN T END HERE 13
There are few more interesting things..it continues as follows The hare was disappointed at losing the race and he did some soul-searching. He realized that he d lost the race only because he had been overconfident, careless, and lax. If he had not taken things for granted, there s no way the tortoise could have beaten him. So he challenged the tortoise to another race. The tortoise agreed. This time, the hare went all out and ran without stopping from start to finish. He won by several miles. 14
Fast and consistent will always beat the slow and steady. It s good to be slow and steady; but it s better to be fast and reliable. THE STORY DOESN T END HERE 15
The tortoise did some thinking this time and realized that there s no way it can beat the hare in a race the way it was currently formatted. It thought for a while and then challenged the hare to another race, but on a slightly different route. The hare agreed. They started off. In keeping with his self- made commitment to be consistently fast, the hare took off and ran at top speed until he came to a broad river. The finishing line was a couple of kilometers on the other side of the river. The hare sat there wondering what to do. In the meantime, the tortoise trundled along, got into the river, swam to the opposite bank, continued walking, and finished the race. 16
First identify your core competency and then change the playing field to suit your core competency. THE STORY STILL HASN T ENDED 17
The hare and the tortoise, by this time, had become pretty good friends and they did some thinking together. Both realized that the last race could have been run much better. So they decided to do the last race again but to run as a team this time. They started off, and this time the hare carried the tortoise till the riverbank. There, the tortoise took over and swam across with the hare on his back. On the opposite bank, the hare again carried the tortoise and they reached the finishing line together. They both felt a greater sense of satisfaction than they d felt earlier. 18
Its good to be individually brilliant and to have strong core competencies; but unless you re able to work in a team and harness each other s core competencies, you ll always perform below par because there will always be situations at which you ll do poorly and someone else does well 19
NEWTYPEOF NETWORKING: Models of networking Alliance Networking Lead Firm Merger 20
ALLIANCE Different together to form an Alliance with a new name of Alliance and continuing to practice independently showcase as an Alliance to the world. firms coming and can 21
NETWORKING Different firms coming together to form a Network with a new Network name and practicing in the name of firms belonging to Network Subject to internal integration agreement. They can Showcase their combined strength 22
LEADFIRM Different firms coming together to form a Network by ways agreement recognizing one of the firms as the lead firm. of an internal This lead firm will bid for professional work on the basis of the combined strength and resources of the Network firms. 23
DIFFERENTMODELS Criteria Alliance Model Network Model Lead Firm Model Name When four firms viz. A & Co., B & Co., C & Co. and D & Co. come together to Alliance, they may name their Alliance ABCD . When four firms viz. A & Co., B & Co., C & Co. and D & Co. come together to form an Network, they may name their Network as ABCD . When four firms viz. A & Co., B & Co., C & Co. and D & Co. come together to form an Network, they will suffix & Affiliates or Network to one of the firms selected by constituent firms as Lead firm e.g. if A & Co. is chosen as Lead firm, then name of Network will be A & Co. & Affiliates form an as In case they wish to use suffix, they will use the suffix & Affiliates Network to their common name to make it ABCD & Affiliates Network In case they wish to use suffix, they will use the suffix &Alliance to their common name to make it ABCD & Alliance . or or ABCD In all professional stationery, the member-firms mention that member-firms of so & so Network can are In stationery, firms can mention that they are member-firms of so & so Network all professional the member- they In stationery, the member- firms can mention that they are member-firms of so & so Alliance. all professional 24
Criteria Alliance Model Network Model Lead Firm Model Registration Alliance registered with ICAI. ICAI will allot unique Alliance Registration Number (ARN) will be Network registered ICAI will allot unique Network Registration Number (NRN) will with be Network will be registered with ICAI. ICAI will allot unique Registration Number (NRN) ICAI. Network Practice Firms are free to carry on practice as independent despite constituents of Alliance. Firms internal agreement, and practice as independent subject to Agreement. decision prevails other firms. are bound integration by Firms can have an Internal agreement recognizing one of the firms as the lead firm, depending specialism and required assignment. The individual firms can carry on practice as Independent firms. firms, being firms, internal Network s upon upon the expertise each for Firms belonging to one Alliance allowed to Associates of another Alliance or Network, so that complexities avoided. can t be become Firms belonging to one Network can t be allowed to become Associates of another Network Alliance, regulatory are avoided. The lead firm and its constituents allowed to Associates Network or Alliance, so that regulatory complexities are avoided. regulatory can t be are or become another so complexities that of 25
Criteria Alliance Model Network Model Lead Firm Model Empanelme nt All firms in Alliance can apply for empanelment separately as individual firms. All Network Empanelment, as individual firms. firms belonging can apply to for Lead firm is entitled to apply for empanelment in its own name, but by way of internal agreement, it will be on behalf of entire Network. separately Their coming together is basically for non-audit services. ICAI will put in efforts to secure recognition of the combined strength resources. When Lead firm applies for empanelment, constituent firms apply. and other cannot For audit practice, they all remain independent Practitioners. as ICAI will put in efforts to secure recognition of the Combined strength and resources. Conflict Conflict exists e.g. if one firm does statutory audit of an entity, another firm in Alliance cannot do internal audit. If one firm does audit work, another firm in the Alliance cannot perform non-audit services of same client. Rotation of audit Amongst constituent firms will not be permitted. Reconstituti on Firms are free to join and exit Alliance. Firms are bound by Network s internal Integration agreement. Reconstitution has to be registered with ICAI Reconstitution has to be registered with ICAI 26
SALIENTFEATUREOF NETWORKING: Firms might need to have detailed knowledge of other firms to make up their mind as to with which firm they will go for Alliance/ Networking. Therefore, data of firms will be made available in the Self Service Portal for the members to view and take informed decision. Any firm of Chartered Accountants can become a part of any one Alliance or any one Network. If it intends to become part of one Alliance, it cannot become part of a Network, and vice versa. Alliance/ Network will be permitted as joint ventures for specific assignments. Documents such as deeds, MOUs, forms can be signed by the Managing Partner of each of the member-firms and need not be signed by all partners. Only firms and LLPs can become member-firms in Alliance/ Network. Individual practitioners are not permitted to be part of Alliance/ Network. Every agreement, bye-law, MOUs, by whatever name called, must be filed with ICAI, without which registration will not be given. The legal status of Alliance/ Network can be that of AOP as recognized by tax laws. Alliance/ Network may open bank accounts in its own name, obtain PAN and GST registration. Alliance/ Network can take up non-attest assignments in its own name, if work is so assigned. Alliance/ Network may prepare a common balance sheet and get the same audited. Alliance/ Network can have website of its own. Appropriate guidelines will be prepared by Ethical Standards Board of ICAI 27
NAMEOF ALLIANCE /NETWORK: Name of Alliance/ Network should resemble name of member-firms or a combination of acronym. Alliance/ Network should not bear the name of God/ Goddess/ deity or which has no relationship with name of member-firms. Descriptive names will not be allowed. Names which smack of publicity will not be allowed. Names which resemble any of the existing firms or network will not be allowed. In case of Brand name, it should be owned only by Indian citizen who is resident in India. 28
FRAMEWORKOF INTERNALBYELAWSOF DIFFERENT MODELS A Alliance arrangement, may include the following Administration of the Alliance Dispute settlement procedures through arbitration and conciliation and assumption of liabilities Resource sharing arrangements A Networking arrangement, may include the following Appointment of a Managing Committee, from among the managing partners of the member firms of the Network and the terms and conditions under which it should function. The minimum and maximum number of members of the Managing Committee shall also be agreed upon. Administration of the Network Contribution of membership fees to meet the cost of the administration of the Network. Identifying a partner of any of the member firms of the Network to be responsible for the administration of the Network Dispute settlement procedures through arbitration and conciliation and assumption of liabilities Development of training materials for members of the Network Development and maintenance of data bases relevant for different types of assignments Library Appointment of a technical director to whom references can be made Development of software and tools for the use of member firms Resource sharing arrangements 29
LEAD FIRM NETWORK: Appointment of one of the firms as the Lead Firm to act as a facilitator on behalf of the member-firms of the Network. The same may be agreed to by the member- firms by way of an internal agreement, a copy of which will have to be filed with the ICAI. The constituent firms will be at liberty to choose a different constituent firm as the Lead firm to represent the Network, depending upon the specialism and expertise required for a particular assignment. 30
RULEOF MERGERAND DEMERGER: Form-E to be filed within 30 days from date of agreement. Reconstituted Partnership Deed to be filed with Registrar of Firms. Demerger terms & conditions can be mentioned in Merger Agreement itself. Not less than 75% of Continuing Partners can file Form-F for Demerger of Firm. (Within 5 Years of Merger) Notice to existing Partners must be given with Form-F Remaining Erstwhile Partners can continue with a New Agreement of Partnership. Demerged Firm is entitled to use Old Firm Name existing at time of Merger. Experience shall be counted from Original Date of Formation. In case of Change in Firm Name, Add (Formerly Known As M/s ______) 31
CA ANKUR KUMAR GUPTA Chartered Accountants 32 7615999963 caankurkumargupta@gmail.com
