Is Your Lawyer a Servant or an Advisor?

A lawyer’s role varies based on client, industry, economics and other circumstances.  However, your lawyer should always be an advisor rather than a mere servant.  In other words, although legal considerations should follow from business context, that doesn’t mean the lawyer should simply follow.  Rather, the best lawyers – the ones that provide clients the most value, protection and opportunity – are actively involved as business and strategic advisors.

Here’s a real life example:

  • 6 prospective partners who don’t know each other well want to form a new LLC.
  • Ownership/management to be split 50-10-10-10-10-10. 
  • Some to be actively involved in operations; some not.
  • Some putting in cash; some not.
  • They wanted a Term Sheet to buy a company with great technology but dysfunctional management, unable to make decisions, including the decision to sell.
  • The Term Sheet was to include few details, as they might “spook” the seller – resulting in a non-binding Term Sheet that would accomplish little, other than having a signed piece of paper.
  • Offer was to be structured strangely, resulting in a “half-in, half-out” relationship with the seller (if the deal was ever consummated) – not because that made sense, but because of the seller’s quirks.     

I could have simply prepared the requested documentation and collected a legal bill.  However, I would’ve known that there was a substantial likelihood of:  problems within the LLC; that the deal would never be consummated; and if it was, difficulty as a result of the deal structure.  Under this circumstance, I would hope all lawyers would feel compelled to advise the client of their concerns, and I would hope that all clients would want that advice.  Without going into great detail, that’s what I did, explaining my concerns regarding:  risk of deadlock; partnerships among people who don’t know each other well; active and inactive partners, and cash and non-cash partners; a nearly meaningless Term Sheet; and a half-in, half-out relationship with a dysfunctional seller.  They ultimately restructured the LLC and the deal and moved forward with a structure much more likely to result in success.  That’s the role of an advisor rather than a servant.

If a client is looking for a lawyer to blindly turn the client’s thoughts into documents without question, analysis, critical thinking and advice, both lawyer and client are missing out, and the client is likely leaving dollars on the table or putting dollars at risk.  That doesn’t make sense from a business or a legal perspective.

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