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290.17, the determination should be “made in light of whether a reasonable and informed third
party would be likely to conclude … that a network exists.” A referral network is not a network
by this definition. The shared costs must be significant. Common quality control systems and
business strategies are important considerations.
This differentiation between network and association materialises in the level of potential
vicarious liability and in a more stringent regulatory framework, with, for example, the
requirement for the formal registration of networks with the national regulatory or supervisory
body, clear conflict checks, and ultimately a formal or perceived proximity between the
individual affiliated member firms. Where, for instance, the use of a common brand and
coordinated or monitored management and control can be identified, the acknowledgement of an
agent structure can be positive. The member firm agreement, reserved ownership of IP regarding
manuals and software, and a centralised implementation of quality control and training
programmes are clear indicators of the existence of an integrated network.
Therefore, the network definition represents an additional layer of liability for accounting
firms organised as members in a transnational entity, regardless of the legal structure this entity
has chosen. Depending on the jurisdiction, this can result in a piercing of the corporate veil.12
Managed organisations of professional service firms are incorporated under the laws of a
wide variety of countries; however, the main legal structures are common law companies limited
by guarantee, Delaware non-stock member corporations and Swiss Vereins. Network
organisations are defined mostly by their purpose, structure, and process. This chapter will
include multidisciplinary organisations, i.e., networks or alliances including both law firms and
accounting firms.
The striking differences between networks in a generic sense and transnational
partnerships cannot necessarily be found by looking at their legal and operational structure. The
aim of most transnational organisations is to have a broad or at least strategic coverage and to be
perceived as such while vicarious liability and burdensome regulatory matters should be
mitigated.
Regulatory matters have thus changed the concept of independence checks and vicarious
liability for global accounting organisations or multidisciplinary organisations consisting of both
accounting firms and law firms. Networks of law firms, however, do not face the same degree of
regulation and are much more flexible. In both the accounting and the law firm cases, this is
regardless of the structure or legal entity chosen. The reason therefore is mainly because law firm
networks are regulated by ethics and not by any governmental agencies, while accounting firm
networks and associations are regulated in accordance with national or supranational laws. The
fact that accounting firm networks were established out of a transnational need based on
reporting requirements and securities laws of individual member firms also underlines the
different scope and the public interest character of these entities. Transnational accounting
networks and associations are usually not directly affected by national regulations; they are
affected when their individual members do not comply with them.
Some law firm networks have in the past five years benefitted from a less regulated
environment compared to the accounting profession. This explains why some law firm networks
consisting of independent member firms organised or bundled in, for example, a Swiss Verein
policies and procedures, a common business strategy, the use of a common brand name or a significant part of professional resources…”
available at
http://ec.europa.eu/internal_market/finances/docs/terminology/annex_2_analysis_of_undertakings_terminology_rev_g3_en.pdf.
12 Gutierrez v. Cayman Islands Firm of Deloitte Touche, 100 S.W. 3d 261 (Tex. App. 2002); see also Deloitte & Touche Netherlands Antilles &
Aruba v. Ulrich 172 SW 3d 255 (Tex. App. 2005).
122
party would be likely to conclude … that a network exists.” A referral network is not a network
by this definition. The shared costs must be significant. Common quality control systems and
business strategies are important considerations.
This differentiation between network and association materialises in the level of potential
vicarious liability and in a more stringent regulatory framework, with, for example, the
requirement for the formal registration of networks with the national regulatory or supervisory
body, clear conflict checks, and ultimately a formal or perceived proximity between the
individual affiliated member firms. Where, for instance, the use of a common brand and
coordinated or monitored management and control can be identified, the acknowledgement of an
agent structure can be positive. The member firm agreement, reserved ownership of IP regarding
manuals and software, and a centralised implementation of quality control and training
programmes are clear indicators of the existence of an integrated network.
Therefore, the network definition represents an additional layer of liability for accounting
firms organised as members in a transnational entity, regardless of the legal structure this entity
has chosen. Depending on the jurisdiction, this can result in a piercing of the corporate veil.12
Managed organisations of professional service firms are incorporated under the laws of a
wide variety of countries; however, the main legal structures are common law companies limited
by guarantee, Delaware non-stock member corporations and Swiss Vereins. Network
organisations are defined mostly by their purpose, structure, and process. This chapter will
include multidisciplinary organisations, i.e., networks or alliances including both law firms and
accounting firms.
The striking differences between networks in a generic sense and transnational
partnerships cannot necessarily be found by looking at their legal and operational structure. The
aim of most transnational organisations is to have a broad or at least strategic coverage and to be
perceived as such while vicarious liability and burdensome regulatory matters should be
mitigated.
Regulatory matters have thus changed the concept of independence checks and vicarious
liability for global accounting organisations or multidisciplinary organisations consisting of both
accounting firms and law firms. Networks of law firms, however, do not face the same degree of
regulation and are much more flexible. In both the accounting and the law firm cases, this is
regardless of the structure or legal entity chosen. The reason therefore is mainly because law firm
networks are regulated by ethics and not by any governmental agencies, while accounting firm
networks and associations are regulated in accordance with national or supranational laws. The
fact that accounting firm networks were established out of a transnational need based on
reporting requirements and securities laws of individual member firms also underlines the
different scope and the public interest character of these entities. Transnational accounting
networks and associations are usually not directly affected by national regulations; they are
affected when their individual members do not comply with them.
Some law firm networks have in the past five years benefitted from a less regulated
environment compared to the accounting profession. This explains why some law firm networks
consisting of independent member firms organised or bundled in, for example, a Swiss Verein
policies and procedures, a common business strategy, the use of a common brand name or a significant part of professional resources…”
available at
http://ec.europa.eu/internal_market/finances/docs/terminology/annex_2_analysis_of_undertakings_terminology_rev_g3_en.pdf.
12 Gutierrez v. Cayman Islands Firm of Deloitte Touche, 100 S.W. 3d 261 (Tex. App. 2002); see also Deloitte & Touche Netherlands Antilles &
Aruba v. Ulrich 172 SW 3d 255 (Tex. App. 2005).
122
