August 11, 1980
A lawyer, who is an officer and stockholder of a closely held corporation, may advise other stockholders and officers of the corporation, so long as his or her advice is not affected by his or her own financial business, property or personal interest.
A lawyer may organize a corporation in which the lawyer and the lawyer's client are principle stockholders, so long as it does not violate the provisions of DR 5-104(A).
References: DR 5-101(A), DR 5-104(A), and DR 5-105.
Your client has requested that you form a corporation in which the client, a doctor, and some of the doctor's friends, who are also doctors, and yourself, will be the only stockholders. All of these stockholders would agree to have you serve as chairman of the board. You state that you would not accept any employment either from your client or corporation, and that your sole interest would be "in the purchase of stock, just like the other stockholders." However, you are requesting an opinion as to whether you can advise your client, as the majority stockholder in the corporation, and at the same time act as chairman of the board, and also, in such capacity advise the corporation. You state that you would also be protecting your own interest as a stockholder.
DR 5-101(A) prohibits a lawyer from accepting employment if the exercise of his or her professional judgment on the behalf of his or her client will be or reasonably may be affected by his or her financial, business, property or personal interest except with the consent of his or her client after a full disclosure. DR 5-104(A) provides that a "lawyer shall not enter into a business transaction with a client if they have different interest and if the client expects the lawyer to exercise his of her professional judgment for the protection of the client, unless the client has consented after full disclosure." DR 5-105 prohibits multiple employment by a lawyer if at anytime the exercise of his or her independent judgment on behalf of his or her own client might be in anyway adversely effected by his or her representation of another client. However, this section provides that if it is obvious that the lawyer can adequately represent the interests of both parties, the lawyer may do so if all parties consent to the representation after a full disclosure.
There is no way that the Committee can give you a blanket opinion as to the propriety of acting as chairman of the board of a corporation, giving advice to the corporation and giving advice to stockholders. Each situation must be decided on an individual basis. A lawyer for a corporation can, of course, be a stockholder and can give advice an officer or corporation is not adverse to the interest of the other entity. The lawyer's advice to the corporation should never be clouded by his/her own interest as a stockholder. If at any time the lawyer gives advice to any stockholder which might conflict with any other advice he or she might have to give or any other interest, the lawyer should refrain from doing so. Informal Opinion 1056 of the American Bar Association Committee on Ethics and Professional Responsibility comments on the responsibility of lawyers acting in various capacities for corporations.
It should be pointed out that many difficult situations could arise when a lawyer attempts to advise persons having different interests in any type of a business enterprise. The procedure would be to refrain from giving any advice in which it might be anticipated that any type of conflict of interest might arise or a question might arise as to the revealing of any confidential information received while a lawyer involved in the corporation. A problem often arises when a lawyer gives advice to the board of directors, if the parties find themselves on opposite sides of a lawsuit the lawyer is often in an untenable position because of confidential information received and must remove him or herself from representation of any party involved.