Corporate & Securities Law

Should your Startup Lawyer also be a Director?

By Ryan Roberts

Startup founders sometimes ask their startup lawyer to serve on the board of directors. The founders may feel that their lawyer is a prime candidate for a board seat since their lawyer (a) is familiar with their startup, and (2) has dealt with a myriad of startup company issues through the lawyer’s representation of such companies.

In most states (I haven’t done a survey all 50), a startup lawyer can simultaneously represent a corporation and serve on the corporation?s board of directors. In order to do so, the lawyer must take careful steps to prevent ethical dilemmas from arising when acting as a lawyer-director. Regardless, the startup lawyer?s duties to the corporation can, and likely will on many occasions, conflict with the lawyer?s duties as a board member.

Your startup lawyer represents your startup company (board of directors). If your startup lawyer joins your board, he or she ends up indirectly advising himself or herself. It is difficult for the startup lawyer-director to provide impartial advice if he or she is both advisor and advisee.

Another negative of having your startup lawyer on your board of directors is that communications between the startup company and a lawyer who is a director may not be entitled to the attorney-client privileged communications rule. Is your lawyer providing legal or business management advice?

Thus, I recommend that founders and startup companies do not have their startup lawyer (or any other lawyer that provides counsel to the startup) sit on their board of directors.

Full post as published by The Startup Lawyer on April 13, 2009 (boomark / email).