Representing Closely Held Entities: Conflicts of Interest and Fiduciary Duties to a Company and its Principals

When counsel represents a closely held entity (a corporation, LLC, or partnership in which there are a small number of owners and a substantial overlap between ownership and management), it can be difficult to discern whether conflicts of interest exist or where a fiduciary duty is owed.

While corporate counsel's first duty is to the company, the principals—who retained counsel—sometimes view that attorney as their own. Counsel must clearly understand who is authorized to take action (instruct counsel) and confirm that necessary board actions and other corporate formalities are followed.

Even after counsel has delineated the scope of representation, intracompany disputes may change the dynamic. Practitioners must be careful to identify their actual client(s) under an attorney-client relationship, disclose any conflicts of interest to those parties, and obtain a conflict waiver if appropriate. Adopted in some form in most states, the ABA Model Rules of Professional Conduct (the ABA Rules) are instructive in that regard.

Listen as our panelist discusses the potential pitfalls of representing a closely held entity, including corporate governance and conflict concerns when representing a company and its principals. The panelist will also examine the ABA Rules and how they might apply in certain fact scenarios.

1. Identifying the client: corporation/company vs. members, shareholders, officers, directors
2. Engagement letters: importance of disclosure and acknowledgment of representation
3. Who holds, is within, and controls an entity's attorney-client privilege
4. Documenting "duly authorized" officers
5. Observing corporate formalities
6. ABA Model Rules of Professional Conduct
7. Special circumstances creating a duty to non-client constituents
8. Best practices when disputes arise between constituents

The panelist will review these and other key issues:

• When can counsel represent a corporate entity and its constituent shareholders, members, officers, or directors?
• How should counsel respond to actions or instructions from an officer of the entity when counsel does not think the action is in the company's best interest?
• When is an attorney-client relationship established under the ABA Rules?
• What steps should counsel take when a dispute arises between shareholders, officers, or directors of a company?