Can a lawyer who owns stock in a corporation also serve as that corporation's lawyer?

Plain-English summary

Noting that this is a question lawyers who represent small corporations face daily, the Committee answered "Qualified yes." It framed the issue under Canon 5, that a lawyer should exercise independent professional judgment on behalf of a client, and the ethical considerations that a lawyer's judgment must be exercised solely for the client's benefit, free of the lawyer's own interest (EC 5-1, 5-2, 5-3, 5-7, 5-11). It emphasized EC 5-18, under which a lawyer retained by a corporation owes allegiance to the entity and not to any stockholder, director, officer, or employee, must keep the entity's interests paramount, and may represent an individual connected with the entity only if convinced no differing interests are present.

The Committee concluded there is no per se rule disqualifying a lawyer who owns stock in a corporation from simultaneously representing it, but cautioned about the multitude of potential conflicts. It pointed to DR 5-101(A) and DR 5-104(A), under which the lawyer may enter into a business transaction touching the representation with full consent and disclosure if he still exercises professional judgment on the client's behalf. Quoting Kentucky Bar Association v. Smith, it stressed that in financial dealings with a client a lawyer must exercise the utmost good faith and fidelity and not place himself in a conflict that would bring the bench and bar into disrepute, concluding that there is no per se rule of disqualification.

Currency note

This opinion was issued in 1984 under Kentucky's former Code of Professional Responsibility (in effect 1971 to 1990), before the Kentucky Bar Association's 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a shareholder be the corporation's lawyer?

A: Under this opinion, qualified yes. The Committee concluded there is no per se rule disqualifying a lawyer who owns stock from representing the corporation.

Q: Who is the client when a lawyer represents a corporation he owns stock in?

A: The opinion stressed, under EC 5-18, that the lawyer owes allegiance to the entity itself, not to any stockholder, director, officer, or employee, and must keep the entity's interests paramount.

Q: What governs the lawyer's own business dealings with the corporation?

A: The opinion pointed to DR 5-101(A) and DR 5-104(A), which permit such transactions with full disclosure and consent so long as the lawyer continues to exercise independent professional judgment for the client.

Background and rules framework

The opinion applied Canon 5 and the former Code's conflict provisions, DR 5-101(A) (the lawyer's own interests) and DR 5-104(A) (business transactions with a client), with EC 5-18 on allegiance to the entity. The modern analogs are Model Rule 1.13 (organization as client), Model Rule 1.7 (concurrent conflicts), and Model Rule 1.8(a) (business transactions with a client). The analysis turned on the entity being the client and on the lawyer's continued independent judgment.

Citations and references

Rules of Professional Conduct:

• DR 5-101(A); DR 5-104(A); Canon 5; EC 5-1, 5-2, 5-3, 5-7, 5-11, 5-18 (former Code)
• MR 1.13 (organization as client); MR 1.7 (conflicts of interest); MR 1.8(a) (business transactions)

Cases:

• Kentucky Bar Association v. Smith (Ky. 1983), good faith and fidelity in financial dealings with a client

See also

• KBA Ethics Op. E-345: Pro Hac Vice and Lay Representation of a Corporation
• KBA Ethics Op. E-329: Bar Justice Center and the Corporate Practice of Law

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-284.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-284
Issued: January 1984

This opinion was decided under the Code of Professional Responsibility, which was in effect from 1971 to 1990. Lawyers should consult the current version of the Rules of Professional Conduct and Comments, SCR 3.130 (available at http://www.kybar.org), before relying on this opinion.

Question:

May an attorney who is a shareholder in a corporation be the attorney for that corporation?

Answer:

Qualified yes.

References:

Canon 5; EC 5-1, 5-2, 5-3, 5-7, 5-11, 5-18; DR 5-101(A), 5-104(A); Kentucky Bar Association v. Smith, Ky., S.W.2d (1983); 30 K.L.S. 12. OPINION

The above question is one in which most lawyers who represent small corporations face on a daily basis. Canon 5 states: "LAWYERS SHOULD EXERCISE INDEPENDENT PROFESSIONAL JUDGMENT ON BEHALF OF A CLIENT." The ethical considerations behind Canon 5 provide in essence that professional judgment of a lawyer must be based solely for the benefit of a client, free of interest of the lawyer. EC 5-1, 5-2, 5-3, 5-7, 5-11. An attorney for a corporation who is also a shareholder of that corporation whose allegiance to the corporate entity is provided in EC 5-18, as follows: A lawyer employed or retained by a corporation or similar entity owes his allegiance to the entity and not to a stockholder, director, officer, employee, representative, or other person connected with the entity. In advising the entity; a lawyer should keep paramount its interests and his professional judgment should not be influenced by the personal desires of any person or organization. Occasionally, a lawyer for an entity is requested by a stockholder, director, officer, employee, representative, or other person connected with the entity to represent him in an individual capacity; in such case the lawyer may serve the individual only if the lawyer is convinced that differing interests are not present.

It is the Ethics Committee's opinion there is no per se rule of disqualification of the lawyer who owns stock in a corporation from simultaneously representing the corporation. However, the Committee must note for the benefit of all lawyers that there are a multitudeness potential for conflicts of interest facing the lawyer in this situation. The Disciplinary Rules, in particular DR 5-101(A) and DR 5-104(A), provide in essence that with full consent and disclosure they can enter into a business transaction for the client if the lawyer still exercises professional judgment on behalf of the client. Recently, in Kentucky Bar Association v. Smith, Ky., S.W.2d (1983), 30 K.L.S. 12, the Supreme Court stated: "... we are committed to the proposition that in financial dealings with a client, a lawyer must exercise the utmost good faith and fidelity to a client and not place himself or herself in a position of conflict of interest such as to bring the bench and bar into disrepute." In conclusion, it is our opinion that there is no per se rule of disqualification in this regard.
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Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the Kentucky Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor rule). The Rule provides that formal opinions are advisory only.