There can be special challenges in new ventures. A business venture often faces significant budgetary constraints in its start-up phase. Thus, prospective business partners commonly seek to manage legal expenses by retaining a single attorney. So, what’s the problem? After all, the partners are not adversaries. Are they? Here are a few thoughts to consider…
What are the practical considerations?
Most people intuitively understand that for legal, ethical, and practical purposes, a lawyer is almost always prohibited from simultaneously representing adversaries in a matter because to do so would result in a conflict of interest. Clearly, when prospective business partners arrive at the attorney’s office, they are not in an adversarial state of mind—they like and trust one another, and they are pursuing a common goal. Nevertheless, the individual partners may have very different interests. The following are just a few examples of how different circumstances can create competing concerns, even between the friendliest of partners:
A partner who has significant wealth may be more concerned about liability protection than her partners who have relatively modest wealth.
An older partner may be more concerned about exit strategies than her younger partners.
A partner who has children may be more concerned about the ability to “bring her children into the business” than the currently childless partners.
A partner who will be devoting her full business time to the venture may be more concerned about compensation and distribution policies than partners who will be absent from the day-to-day operations of the venture.
Thus, even in the friendliest of circumstances, it may be difficult or impossible for an attorney to structure the company in a manner that will be “fair to everyone.”
Is there a work-around?
While it is usually ideal for each party to be represented by his or her own legal counsel, there may be a workable alternative. In some circumstances, an attorney may be able to represent more than one client with respect to a single venture. However, such typically requires the client’s express consent after being fully informed of the risks associated with the “dual” representation. Another alternative is for the attorney to represent the entity rather than the individual partners. However, any work-around is likely to reduce the level of confidentiality, attorney-client privilege, and advocacy a client would enjoy if the attorney were representing only his/her interests.
A person’s interests will likely be best protected if the attorney is representing he/she alone with respect to the venture in question. Where budgetary constraints prohibit separate representations, there may be workable alternatives, but the clients may be sacrificing a degree of confidentiality, attorney-client privilege, and advocacy.
This article is provided solely for the general interest of the reader. The article and its contents are neither intended as, nor should be construed as, legal advice or opinion. Legal advice and opinion are provided by the firm only upon engagement with respect to specific factual situations.