I am a shareholder in a closely-held corporation. Can I also serve as the corporation's lawyer?

Plain-English summary

The inquiring attorney is a shareholder of a closely-held corporation and asked whether he or she may also act as lawyer to the organization.

The opinion applies Rule 1.7(b), which bars representing a client if the representation may be materially limited by the lawyer's responsibilities to another client or third person, or by the lawyer's own interests, unless the lawyer reasonably believes the representation will not be adversely affected and the client consents after consultation. The opinion explains the rule ensures that a lawyer's range of options is not materially limited by other interests or responsibilities that might impair the lawyer's ability to consider, recommend, or carry out an appropriate course of action.

Drawing on the Comment to Rule 1.7 addressing a lawyer's dual role as board director and corporate lawyer, the opinion reasons by analogy that the same guidance applies to a shareholder who also serves as corporate lawyer. It states the attorney should be mindful of the potential for future conflicts arising from the dual role. To permit the representation in compliance with Rule 1.7, the attorney must believe the proposed representation will not be materially limited by his or her own interests as a shareholder, unless the attorney believes the representation will not be adversely affected and the corporation consents after consultation. The opinion adds that if the attorney undertakes the representation, he or she must strictly comply with the applicable provisions of Rule 1.8 (Conflict of Interest: Prohibited Transactions) and Rule 1.13 (Organization as Client).

In practice

Under this opinion, a shareholder-lawyer's own financial stake in the corporation is a Rule 1.7(b) material-limitation concern, so the representation is conditioned rather than barred. The opinion imports the board-director/corporate-lawyer Comment by analogy and frames the test around the lawyer's own interests as a shareholder, with corporate consent after consultation as the path when there is a material risk to the lawyer's independent judgment. It layers on strict compliance with Rule 1.8 (prohibited transactions) and Rule 1.13 (organization as client).

Common questions

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

A: Yes, conditionally. The opinion permits it under Rule 1.7 if the representation will not be materially limited by the lawyer's shareholder interests, or will not be adversely affected and the corporation consents after consultation.

Q: Why does the opinion cite the board-director Comment?

A: The opinion reasons by analogy that the Comment addressing a lawyer who is also a board director applies equally to a shareholder serving as corporate lawyer.

Q: What other rules apply if the shareholder takes on the representation?

A: The opinion states the attorney must strictly comply with Rule 1.8 (Conflict of Interest: Prohibited Transactions) and Rule 1.13 (Organization as Client).

Background and rules framework

The opinion interprets Rhode Island Rules of Professional Conduct 1.7(b) (conflict of interest: general rule; material limitation by the lawyer's own interests), 1.8 (conflict of interest: prohibited transactions), and 1.13 (organization as client), analogs of the corresponding Model Rules. It relies on the Comment to Rule 1.7 (dual role as director and corporate lawyer) and the Annotated Model Rules for the rule's purpose.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / RI RPC 1.7(b) (conflict from the lawyer's own interests)
• MR 1.8 / RI RPC 1.8 (conflict of interest: prohibited transactions)
• MR 1.13 / RI RPC 1.13 (organization as client)

Other authorities cited:

• Annotated Model Rules of Professional Conduct, 114 (2nd ed. 1992)

See also

• RI EAP Opinion 93-58: a lawyer for a corporation and both shareholders under 2.2, 1.13, and 1.7
• RI EAP Opinion 93-44: may not represent a shareholder against a current corporate client without consent under 1.7

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2093-80.pdf

Original opinion text

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

(FINAL)
ETHICS ADVISORY PANEL
OPINION #93-80, REQUEST #422
Issued October 5, 1993

The inquiring attorney is a shareholder of a closely-held corporation and asks whether he/she may also act as lawyer to the organization.

Rule 1.7 entitled "Conflict of Interest: General Rule" provides in pertinent part as follows:

(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless (emphasis added):
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation. . . .

The Rule ensures "that a lawyer's range of options is not materially limited by other interests or responsibilities which might impair the lawyer's ability to consider, recommend, or carry out an appropriate course of action." Annotated Model Rules of Professional Conduct, 114 (2nd ed. 1992).

The Comment to the Rule, though addressing a lawyer's dual role as a board director and corporate lawyer, provides guidance in resolving this inquiry. It states in part as follows:

A lawyer for a corporation or other organization who is also a member of its board of directors should determine if the responsibilities of the two roles may conflict. Consideration should be given to the frequency with which such situations may arise, the potential intensity of the conflict, the effect of the lawyer's resignation from the board and the possibility of the corporation obtaining legal advice from another lawyer in such situations. If there is a material risk that the dual role will compromise the lawyer's independence of professional judgment, the lawyer should not serve as director.

The Panel believes that by analogy the Comment has the same application to the shareholders of a closely-held corporation, having the dual role of corporate lawyer, as it does to members serving on a board of directors. Thus, the inquiring attorney should be mindful of the potential for future conflicts arising as a result of the dual role.

In this case, the inquiring attorney seeks to represent the corporation of which he/she is a shareholder. To permit representation in compliance with Rule 1.7, the inquiring attorney must believe that the proposed representation will not be materially limited by his/her own interests as a shareholder, unless he/she believes that the representation will not be adversely affected and the corporation gives its consent after consultation.

Further, if the inquiring attorney undertakes representation of the corporation, he/she must strictly comply with the applicable provisions of Rule 1.8 (Conflict of Interest: Prohibited Transactions) and Rule 1.13 (Organization as Client).