Transitioning to a new legal entity structure is a highly intricate process, laden with logistical and regulatory complexities. For legal practitioners, 1 July is the preferred commencement date, aligning with the new financial year and professional indemnity insurance renewal. However, one critical warning: this is not a decision to make at the last minute.
During this pivotal transition, legal practitioners must maintain an unwavering focus on both the existing and emerging entity structures. While, in theory, one entity closes and another begins, reality is far more demanding. This period places immense pressure on law practice principals, coinciding with one of the busiest times of the year. Proactive planning and strategic execution are essential to navigating this change smoothly.
Key Considerations for a Seamless Transition
June is already a demanding month, think CTA requirements, end-of-financial-year obligations, PC renewals, MCPD rectification deadlines, external examination preparation, and end-of-month reporting. Adding the complexities of entity transition requires meticulous planning. Critical matters must be addressed for both the outgoing and incoming entities (if a new ACN/ABN is involved).
Trust Accounts & Financial Compliance
- New Entity General Trust Bank Account – A new trust bank account is required but must meet stringent requirements and cannot be opened prematurely. Notifications to the Law Society must be submitted within 14 days.
- Closure of the Outgoing General Trust Bank Account – Must be completed before 30 June, ensuring all client authorities are received for trust money transfers. Delays beyond 30 June may trigger additional PI Insurance costs for the entire financial year. Consider strategies for handling dormant balances, unidentified deposits, unpresented cheques, and non-responsive clients.
- Combined Trust Account Funds – Withdrawals from the outgoing entity CTA must be deposited back into the general trust bank account, adhering to strict regulatory requirements.
- Trust records must accurately reflect the payment of trust money from the outgoing entity to the new entity trust bank account; and the receipting of trust money in the incoming entity trust records from the outgoing entity’s trust bank account.
Regulatory & Compliance Obligations
- Revenue SA – A new account is required for the new entity. The outgoing entity trust bank account cannot be used for settlements under the new entity, and vice versa. Ensure timely preparation for this transition. The new entity trust bank account must be opened accordingly.
- PEXA Workspaces – A new workspace is required for the new entity. Settlements must be conducted separately for the outgoing and incoming entities. The new entity trust bank account must be opened accordingly.
- Final External Examination – Arrange for a final external examination of the outgoing entity’s trust accounts and records, ensuring the final report is submitted to the Law Society within 60 days of trust account closure.
Operational Adjustments
- New Costs Agreements – Should be created for the new entity to reflect updated terms and conditions and to reduce risk.
- Tax Invoices & Entity Identification – New entity tax invoices must display the new ABN. For incorporated legal entities, the ACN must be shown if the last nine digits of the ACN and ABN do not match.
- Law Practice Management System & Associated Accounting Software – Ensure the new entity is properly set up in the system, with the new trust bank account added. Records for each entity must be kept entirely separate.
- Ongoing Compliance – Maintain strict adherence to transaction recording and compliance reporting to meet regulatory obligations.
Additional Compliance Considerations
Beyond the immediate transition, legal practitioners should also consider:
- ASIC Notifications – Ensure all required updates regarding business structure changes are submitted to ASIC.
- Tax & GST Compliance – Verify obligations related to GST registration, PAYG withholding, and business activity statements.
- Business Name & Licensing – If operating under a new business name, ensure proper registration and compliance with licensing requirements.
- Payroll – When transitioning to a new legal entity, payroll setup requires careful planning to ensure compliance and continuity.
- Data & Client Record Management – Implement a structured approach to securely transfer and maintain client records across entities.
How Nimblebiz can Help
Having a trusted partner in this process can take the weight off your shoulders. Our qualified Accountants, Bookkeepers and Administration support staff understand your accounting and bookkeeping requirements, trust accounting, and legal regulatory compliance requirements taking the headache out of keeping your business up to date, allowing you to focus on your core competencies, therefore enabling your business to succeed.