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.