How can a business lawyer add value to a business transaction?

Business lawyers are often underused. Many people are unaware what a business lawyer does or how a business lawyer can add value to a transaction. The belief that one “needs a lawyer” often arises only when a company is served with a lawsuit or when the owners or managers of the company wish to sue a party that has breached its agreements. A business lawyer’s earlier involvement could have prevented those problems. Often a client learns what an agreement they signed actually says (or fails to say), and what the terms actually mean, once they re-read the agreement in connection with litigation. Even when the agreement was drafted by the client, it can contain ambiguities which were initially overlooked. The drafter, knowing what was meant, did not consider how the other party could interpret the words – honestly or strategically, to change the deal. Seemingly standard provisions can be inconsistent with other portions of the agreement or with the company’s desires, and important “what if” considerations can be missing altogether. A business lawyer can add value to a transaction by helping negotiate, draft, clarify, and explain the terms of a proposed legal agreement. Accordingly, an experienced business lawyer’s involvement at the commencement of a business relationship can reduce or eliminate the requirement for a litigator’s involvement when that relationship begins to sour or promises are broken.

Certainly, not all transactions warrant the involvement of a business lawyer. People engage in transactions without lawyers on a daily basis, and companies do as well. If a transaction is sufficiently costly or important, companies will often consult a business lawyer. Buyers of goods and services generally recognize the risk that they may not receive what they thought they bargained for, and often base their risk analysis on the purchase price, the probability of fraud or mistake, and the cost to enforce their agreement. This analysis can be flawed due to imperfect information. There may be unanticipated risks, such as regulatory, criminal, tax, or successor liability ramifications, which could also have an impact. Good due diligence and consideration of these risks could result in a lower purchase price, deferred payments or hold-backs, indemnification provisions, a requirement that closing contingencies be met, a change in the way in which a transaction is structured, or an abandonment of the transaction altogether. A business lawyer can also add value to a transaction in which the company is the seller of or services, especially if the buyer has requested protectionist provisions. Even in a fairly simple deal, the representations and warranties the client makes in an agreement could lead to liability far in excess of the cash payment received at closing. The appropriate level of business lawyer involvement will differ depending on the type of transaction and the risks and rewards involved, and is an important decision for the owners and managers of the company.