The Ethics of Representing Founders

Abstract

Lawyers assisting entrepreneurial startups frequently work with individual founders before any formal organizational client materializes. In advising founders about such legal matters as whether to establish an entity, and if so which entity best fits the needs of the enterprise, as well as how to arrange the owners’ relationships within the business, the lawyer necessarily has an attorney-client relationship with someone. The prevailing scholarship about startup representation pays surprisingly little attention to the posture of the lawyer and her founder clients in the pre-organization context. This Article investigates the lawyer’s responsibilities and commitments in depth.

A lawyer working with a solo founder faces few inherent ethical challenges in that role. By contrast, a lawyer assisting multiple founders — likely the most common startup arrangement — encounters critical ethical choices. She may represent each of the founders individually and jointly, or she may represent the collectivity as a de facto partnership. That mutually-exclusive distinction, driven, the Article argues, by the nature of the startup’s business activity, affects the lawyer’s responsibilities and the founders’ duties to one another. The founders’ counsel also must account for the fact that the startup world in practice can be quite fluid, with a team of founders shifting over time, as some participants drift away, replaced by new team members. The departing founders will then qualify either as former clients or as former partners, and in either instance the lawyer must be transparent about her duties to the remaining founders. Finally, in those settings where the founders intend to establish a charitable organization, one that will not have owners, the lawyer’s duties to the founders are further complicated.

This Article examines the ethical responsibilities of the founder’s lawyer in each of those contexts in light of the best read of available substantive law teachings.