Can a Lawyer Represent Both Investor and Startup Simultaneously?

While it might be tempting for a lawyer to take on the roles of representing both an investor and a startup in an investment transaction, it is crucial to understand the potential conflicts of interest and the necessary legal requirements.

Taking on Both Roles: Potential Conflicts of Interest

U.S. legal standards generally consider an investor and the startup to be adverse parties in the context of an investment transaction. Even if their business interests align, their legal interests may come into opposition. It is essential to recognize that a lawyer's primary duty is to act in the best interest of their client, which may mean that the lawyer's legal interests could diverge from either party's interests at some point.

This divergence in interests is a critical factor that necessitates a strict separation of legal representation. Once a conflict of interest arises, the lawyer can no longer represent either party effectively. For this reason, it is highly recommended to have separate legal representation from the outset of the transaction.

U.S. Legal Standards: Representation of Both Parties

Under U.S. legal standards, a lawyer may represent both parties only if two conditions are met:

The lawyer must notify both parties in writing that there is an actual conflict of interest. The parties must provide their informed written consent to the existence of this conflict.

In California, this requirement is codified in Rule of Professional Conduct 3-310C. This rule explicitly prohibits a lawyer from accepting representation if there is a conflict of interest without the explicit written consent of both clients.

Rule of Professional Conduct 3-310C states:

A member shall not without the informed written consent of each client: Accept representation of more than one client in a matter in which the interests of the clients potentially conflict or Accept or continue representation of more than one client in a matter in which the interests of the clients actually conlict or Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.

Important Disclaimer

This article is not a substitute for professional legal advice. Engaging in legal representation can be highly complex, and it is crucial to ensure you have the appropriate guidance from a licensed attorney in your jurisdiction. If you provide confidential information without ensuring that it remains protected, you may expose yourself to legal risks. It is advisable to seek the advice of a licensed attorney before taking any actions that may affect your legal rights.

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Understanding the legal complexities is crucial, especially in the fast-paced world of startups and investments. Legal representation is not only about preventing conflicts but also about ensuring that your interests are protected. It is always better to have a clear and transparent legal structure in place from the beginning, even if it means seeking separate legal counsel for the investor and the startup.