Category: Legal Ethics

DOES COPYING YOUR LAWYER ON A COMMUNICATION CREATE ATTORNEY-CLIENT PRIVILEGE

By , October 19, 2016 10:51 am

Attorney/client privilege issues arise in every area of legal practice, including, of course, LLC formation practice.  The post under the link below addresses briefly an interesting attorney/client privilege question  that more than a few lawyers might answer incorrectly.

Here’s the link:  http://www.jdsupra.com/legalnews/copying-legal-counsel-doesn-t-create-46690/

NEW ARTICLE ON LEGAL MALPRACTICE IN LLC FORMATIONS

By , June 22, 2016 9:19 am

Among the most important issues that lawyers must address before they begin their LLC formation practice is the issue of what constitutes legal malpractice in these formations.  Gianfranco A. Pietrafesa, a partner in the New Jersey law firm of Archer & Greiner, P.C., has just published an excellent article on that issue.  The link to the article is:

http://www.archerlaw.com/files/articles/Pietrafesa%20-%20Avoiding%20Legal%20Malpractice%20in%20LLC%20Formations.pdf

BLOG POST RE: REPRESENTING LLCS

By , December 21, 2015 4:06 pm

Any time you help form a multi-member LLC, you face one or more and sometimes several issues of legal ethics.  The blog post under the link below is from Tom Rutledge, a leading U.S. LLC lawyer.  It provides a thoughtful discussion of some of these issues as they have arisen in a recent case.  I don’t entirely agree with the post, but it’s well worth a careful reading.

Here’s the link:  http://kentuckybusinessentitylaw.blogspot.com/2015/11/whose-attorney.html

TEN KEY ISSUES OF LEGAL ETHICS IN FORMING LLCs

By , March 4, 2014 11:57 am

You shouldn’t form LLCs for your clients unless you first identify for yourself all of the issues of professional ethics potentially relevant in these formations and ensure that you are able to comply with all of them.  In my view, there are 10 such issues.  In this article I’ll list each of them, with brief comments on each, and, where relevant, I’ll cite the relevant rules of the American Bar Association Rules of Professional Conduct (which are in effect in all U.S. jurisdictions except California).  In future articles, I’ll discuss each of these issues in greater detail.

  1. Does an attorney client relationship exist?  Obviously, you won’t have attorney ethical duties to a person who is not your client, and the attorney-client relationship is contractual.  However, the cases make clear that in determining whether an attorney-client relationship exists, the purported client’s “reasonable perception” can be decisive.   This means that in any LLC formation, you have to make clear to the parties who is your client and who is not.
  2. Rule 1.1—Competence.  Under Rule 1.1, you shouldn’t form LLCs for clients unless you have (a) a solid knowledge of the governing LLC statutory and case law case; (b) the necessary know-how; and (c) the necessary practice tools.
  3. Rule 1.2—Scope of Representation.  Under Rule 1.2, you shouldn’t form LLCs for clients unless you define for your clients the scope of your representation in the formation.  Thus, for example, (a) if you’re not a tax lawyer, you should inform them that you will not be advising them about tax issues (which may well be the most important issues in the formation) or addressing these issues in their operating agreement; and (b) if you are not a securities lawyer and any of the prospective members will be passive investors, you must inform your clients that you won’t be handling federal or state securities laws in the formation.
  4. Rule 1.3—Diligence.  Rule 1.3 requires that in forming LLCs, you must be (a) thorough, (b) timely, and (c) above all, zealous.  The principle underlying this third element of the duty of diligence is that forming LLCs and, more generally, practicing law is not just a job.  It’s a calling.
  5. Rule 1.4—Communication.  Rule 1.4 requires that, in forming LLCs for your clients, (a) you keep them currently informed about the status of your work for them; (b) that you respond promptly to their requests for information; and (c) that you explain to them all relevant issues to the extent necessary to enable them to make informed decisions about these issues.
  6. Rule 1.5—Fees.  Rule 1.5 requires that your fees for LLC formations be “reasonable.”  The Comments on the rule list ten factors potentially useful in determining what constitutes a “reasonable” fee, including the time and skill required for the task in question.
  7. Rule 1.6—Confidentiality.  Rule 1.6 imposes a sweeping duty of confidentiality on lawyers forming LLCs for their clients, including confidentiality as to the identity of the clients.
  8. Rule 1.7—Conflicts of Interest.  Under the Comments on Rule 1.7, the concept of what constitutes a conflict of interest is very broad; it includes any influence on lawyers that might result in less than complete commitment to their clients in handling the engagement in question.  In the formation of multi-member LLCs, the most common conflicts are those that arise in joint representations—i.e., in representing two or more parties to the formation.
  9. Rule 1.8(a)—“Entering into Business Transactions with Clients.”  The most important implication in Rule 1.8(a) for lawyers forming LLCs for their clients is that they shouldn’t ask for or accept interests in these LLCs (a) except in the most unusual situations and (b) after punctilious compliance with the disclosure requirements of the rule.
  10. Rule 5.5—Unauthorized Practice of Law.  In general, Rule 5.5 requires (a) that lawyers not represent or imply to clients that they are licensed in any jurisdiction where they are not licensed; and (b) that they not maintain offices in jurisdictions where they are not licensed.

Does Rule 5.5 bar lawyers not licensed in Delaware from forming Delaware LLCs?  No; but under Rule 1.1, lawyers may not form these LLCs unless they have, among other things, a solid knowledge of Delaware Limited Liability Company Act statutory and case law.

THE DELICATE TOPIC OF BILLING CLIENTS FOR LLC FORMATION SERVICES

By , June 1, 2012 10:23 am

For me, and perhaps for many other lawyers who provide LLC formation services, the hardest part of law practice is sometimes not providing these services but billing for them. I suggest, for your comment (whether you are a lawyer or a client), the following basic rules for this billing:

  • Your bills should never surprise your clients.
  • This means that as soon as you have a sense of the services your clients need, you should provide them with at least an “order-of- magnitude” estimate as to what you will probably charge for these services; and you should promptly notify them whenever you discover that your bill may exceed this estimate.
  • In every appropriate case, you should explain to your clients that every LLC formation can involve either basic, intermediate or comprehensive legal services. And you should explain that the level of service they choose should be based on (i) the magnitude of the financial or other stakes for them in the formation; and (ii) their ability and willingness to pay for legal services for the formation.

To illustrate these three levels: If the client is an individual (“Mr. Able”) and wants to form a single-member LLC:

  1. Basic services would consist of Able’s simply completing and filing articles of organization with the Secretary of State himself or your completing and filing them for him. If you provide him with these services, they will normally require less than an hour of your time.
  2. Intermediate services would consist of the above services but also of your selecting the right form for an operating agreement for Able, discussing its terms with him (including terms governing the LLC’s management and tax structure), and completing the form accordingly. These services might require 2.5 hours of your time.
  3. Comprehensive services would consist of your drafting not only articles of organization and an operating agreement for Able but also, before you do so, providing him with a memo (I call these memos “planning memos”) identifying the main legal and tax issues in his formation and explaining how you think each of them should be resolved.

 

TEN ISSUES OF LEGAL ETHICS IN FORMING LLCs

By , October 19, 2010 7:50 am

On Monday, October 18, 2010, I taught a one-hour national teleconference seminar for National Business Institute about the issues of legal ethics that often arise for lawyers in forming LLCs.  If this is a topic that interests you, you can access here the nine-page outline I prepared for seminar attendees.

Below are the 10 main issues I believe are likely to be relevant to lawyers at least from time to time in handling LLC issues.  The rules cited below are the American Bar Association Rules of Professional Conduct.

1)     With which persons involved in the formation do you have an attorney-client relation? (Obvious, you have no ethical duties to persons who are not your clients in the formation.)

2)     What do you need to know and do in order to be competent in the formation?  (Rule 1.1.)

3)     How should you define for your LLC formation clients the scope of your representation of them in the formation?  (Rule 1.2.)

4)     What do you have to do in order to be diligent in the formation? (Rule 1.3.)

5)     What do you have to do in order to engage in adequate communication with your clients in the formation?  (Rule 1.4.)

6)     What fees may you charge your clients in the formation?  (Rule 1.5.)

7)     What types of client information must you treat with confidentiality in the formation?  (Rule 1.6.)

8)     What, in general, must you do in order to avoid conflicts of interest in the formation? (Rule 1.7.)

9)     Under what circumstances may you represent two or more persons in the same LLC formation in a joint representation, and what rules must you observe in order to ensure that no conflict-of-interest issues arise in the representation?  (Rule 1.7.)

What must you do in order to ensure that in handling the formation, you are not engaging in the unauthorized practice of law?  (Rule 5.5.)