Is it appropriate to have one lawyer document a joint venture (or multiple owner companies) on behalf of the proposed business owners (two or more people)? A number of considerations come into play. All parties involved should weigh and understand these.
In Texas, if both parties knowingly consent, attorney ethics rules permit an attorney to take on such a role.
Timewise and coastwise, there is certainly an efficiency to having all parties meet with the lawyer, put their agreement together, and move to completion without involving multiple lawyers and the ensuing conference calls, discussions and scheduling issues.
When an attorney decides to form/document a business entity for two or more people, some aspects of a traditional attorney-client relationship will change. For instance, the attorney’s role is no longer to advocate or negotiate on behalf of only one party but to document the agreement between the multiple parties.
If either party wants independent advice or help in determining what to negotiate, they have to hire their own lawyer.
#4 Confidential Information
Attorney-client privilege will change. No party can expect the lawyer to keep confidential anything that they tell the lawyer in connection with the formation. They cannot expect that such information will be held secret or will not become known to the others involved. In other words, separate counsel will be required to discuss matters in complete privacy. This acts to lessen rights to attorney-client privilege in many circumstances.
#5 Discussion with All Parties
In forming the Company, so that each party can make adequately-informed decisions, the lawyer will be required to consult with all parties concerning the decisions to be made and any relevant considerations. The lawyer will function as a conduit and will communicate with all parties on the same subject matter from time to time.
#6 Withdrawal from Representation
The lawyer will be forced to withdraw from the transaction if any party to the multi-party representation requests it or if it becomes apparent that:
- the matter cannot be resolved without the necessity of contested litigation on terms compatible with each party’s best interests;
- that any party will not be able to make adequately informed decisions in the matter;
- that there is more than a little risk of material prejudice to the interests of other parties if the contemplated resolution is unsuccessful; or
- the lawyer reasonably believes that the common representation can no longer be undertaken impartially and without improper effect on other responsibilities the lawyer has, to any of the clients.
Should I Go This Route?
There are efficiency and timing benefits to having one lawyer prepare the governing documents of the new entity and look out for all the owners. However, there are significant risks if the parties begin to disagree–in fact, a lawyer could possibly be forced to withdraw, causing the parties to have to restart the formation process with new counsel.
What has been your experience with the legal aspects/risks of a joint venture/multiple owner companies? What would you do differently? Please add your comments below.
Each case is unique. Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages.com/photographer Jack Sanders.
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