Your startup’s lawyer represents the company, not you personally. Most of the time that doesn’t matter, because what’s good for the company is good for its founders. When your personal interests and the company’s diverge, as in your own employment terms, a co-founder dispute or a sale of your own shares, you need your own lawyer.
Key takeaways
- The client is the corporation, acting through its board. Not the founders, not the CEO and not the stockholders as a group.
- The engagement letter names the client. Read it.
- Before the company exists, founders engage the lawyer to form it. Once it’s formed, the company is the client.
- Company counsel can’t advise you against the company. Expect them to tell you when you need your own lawyer.
- A firm representing the company won’t also represent investors or employees on the other side of the same deal.
Who is the client?
When a law firm represents a startup, the client is the corporation. The company acts through its board of directors and officers, so in practice the lawyer takes direction from them, but the lawyer’s duty runs to the company itself. Company counsel doesn’t represent the founders individually, the CEO personally or the stockholders as a group.
You may know the company’s lawyer well, and they may go out of their way to help you. But when your interests and the company’s split, their duty of loyalty is to the company, and what you tell them may not be confidential from the company.
Who is the client at formation?
Before the company exists, the founders hire the lawyer to form it. The engagement letter should say that once the company is formed, it becomes the client, and that the lawyer isn’t representing any founder individually. That matters most for founder stock, vesting and IP assignments, where the company’s documents set terms between the founders.
Usually the founders agree on all of this and separate lawyers would only add cost. But if founders disagree on the equity split, vesting or who owns pre-formation IP, any founder can and should get their own lawyer to review the documents. See Founder Equity and Who Owns Startup IP?.
Who does company counsel represent in a co-founder separation?
The company. When a co-founder leaves, the company negotiates the separation agreement and any repurchase of unvested shares. Company counsel acts for the company, which in practice means the board. That isn’t the same as representing the founder who stays, even if that founder is the CEO and their interests line up with the company’s.
The departing founder should have their own lawyer review the separation terms, what happens to their shares and the release they are signing. See What Happens to Startup Stock When You Leave?.
What if the board and the CEO disagree?
Company counsel still represents the company, which acts through its board. If the CEO and the board disagree about strategy, a financing or the CEO’s own role, counsel follows the board’s direction on behalf of the company. If the CEO’s employment, compensation or equity is at stake, the CEO should get personal counsel. See Fiduciary Duties of Startup Founders.
Can the company’s lawyer also represent investors or employees?
Not in the same deal. A firm representing the company in a financing won’t also represent an angel or a fund investing in that round, and it won’t represent an employee negotiating their offer with the company. Before taking on a new client, a firm runs a conflicts check to make sure it isn’t already representing someone on the other side. Investors usually have their own counsel, and in many seed rounds they rely on the standard documents without separate representation.
When do I need my own lawyer?
Get personal counsel when your interests and the company’s may diverge, including:
- Negotiating your own employment agreement, compensation or severance with the company.
- A dispute with a co-founder over equity, roles or control.
- Your own separation from the company, including the repurchase of your shares.
- Signing a personal guarantee for a company lease or loan.
- Selling your own shares in a secondary sale.
- Any situation where the board’s interests and yours may conflict.
Company counsel should tell you when one of these comes up. If they don’t and you’re unsure, ask them directly whose interests they are protecting. If you need a referral to independent counsel, the company’s lawyer can usually suggest someone.
For more on working with lawyers, see How Do I Choose a Startup Lawyer? and How Can Startups Avoid Wasting Money on Lawyers?. If you’d like to talk about representing your company, contact us.
