Lawyers can be excellent business partners. The situation is relatively uncomplicated if your current or prospective business partner happens to be a lawyer but is not currently representing you or the business entity and, importantly, does not enter into a future attorney-client relationship with you or the entity. This lawyer will likely make it clear that she does not and does not wish to represent you or the entity and will recommend that you seek independent counsel.
However, if you consider entering into business with a lawyer who does represent you, whether initiated by you or the lawyer, the lawyer is bound by strict California ethics rules, here given verbatim, because of their importance (CA Rule of Professional Conduct 1.8.1):
A lawyer shall not enter into a business transaction with a client, or knowingly* acquire an ownership, possessory, security or other pecuniary interest adverse to a client, unless each of the following requirements has been satisfied:
(a) the transaction or acquisition and its terms are fair and reasonable* to the client and the terms and the lawyer’s role in the transaction or acquisition are fully disclosed and transmitted in writing* to the client in a manner that should reasonably* have been understood by the client;
(b) the client either is represented in the transaction or acquisition by an independent lawyer of the client’s choice or the client is advised in writing* to seek the advice of an independent lawyer of the client’s choice and is given a reasonable* opportunity to seek that advice; and
(c) the client thereafter provides informed written consent* to the terms of the transaction or acquisition, and to the lawyer’s role in it.
This 2018 rule supersedes a previous rule and includes the new requirement that not only the transaction but also the lawyer’s role in the transaction be disclosed and subject to informed written consent.
The trust and estate lawyer and the closely held corporation
