California Injury Attorney Blog

A. Preliminary Considerations Identifying the Client:

An attorney who is asked to plan and draft, or to review, a buy-sell agreement often faces a preliminary problem in ascertaining which party is being represented: Is it the entity itself, management asindividuals, some or all of the shareholders or partners, or a combinationof these parties? Unless counsel has decided to avoid the multiple representation issue by representing only one party to the transaction,the initial conflict letter should set forth the party or parties who are considered to be the client.

If the entity is the client, the attorney must "conform his or her representation to the concept that the client is the organization itself,acting through its highest authorized officer, employee, body, or constituent overseeing the particular engagement." Cal Rules of Prof Cond 3-600(A). See also Meehan v Hopps (1956) 144 CA2d 284,
290, 301 P2d 10, 14 ("The attorney for a corporation represents, its stockholders and its officers in their representative capacity.He in no way represents the officers personally"). Whenever it becomes apparent that the organization's interests are or may be adverse to the organization's directors, officers, employees, members, shareholders,
or other constituents with whom the attorney is dealing,the attorney must identify the client for whom he or she is acting.Cal Rules of Prof Cond 3-600(D).Because the attorney must rely on the entity's management or-owners to determine its interests, maintaining the distinction between the entity and its constituents can be particularly difficult in buy-sell situations, whether the attorney represents multiple parties to the agreement or only the entity. Frequently, the same individuals who
are the parties to the agreement will have made the decision to retain the attorney.

Unless counsel takes particular care to distinguish between the entity and its constituents, he or she risks representing the entity inadequately or representing conflicting interests.

Once the buy-sell agreement has been drafted, questions may arise about who, if anyone, will be represented by the attorney in the future. Moreover, designating the person or persons who will be instructing the attorney, and on whose directions the
attorney may rely, will force the parties to consider this issue at the outset. With large business entities, limiting this authority to selected individuals often results in better communication between the attorney and the client and avoids unnecessary legal fees attributable to poor communication and direction from multiple representatives.