Levels of Business Lawyer Involvement

The level of lawyer involvement in any business transaction can vary. Some clients wish to limit their lawyers involvement to a very basic level, while others need significant legal assistance. Sometimes this decision is based upon the type of transaction, the issues at stake, or the client’s legal budget. Many times a potential client is not aware of the different levels of assistance that are available or the value that a lawyer could add to a transaction.

Intermediate Level I - Transactional Cost Engineer Relationship

At a deeper level, a business lawyer performs services as a “transactional cost engineer” by recommending, drafting and negotiating a myriad of “cost shifting” provisions in each business transaction. The business lawyer is in a good position to do this by virtue of having experience in the types of transactions being worked upon, and can draw from that experience to first “spot” a potential cost, and then “allocate” it either to the buyer or the seller depending upon which side the business lawyer is working. For example, in the sale of an asset, the buyer’s attorney would know from experience on similar asset sales as to which “representations and warranties” should be able to be made by the seller about the asset, and also, what are the consequences should there be discovered after the sale that a representation or warranty was defective. A simple example would be that the asset is owned free and clear of all liens, as opposed to being collateral on a bank loan (one kind of lien). Without drafting for and negotiating for something as simple as a representation and warranty that an asset not have liens against it, the buyer could, after having spent resources to acquire the asset, lose the asset to the lender who had a lien against the asset as collateral for a loan. In connection with providing for the “representation and warranty” it then, in this example, naturally follows that the business lawyer could perform an additional service of searching public records as to whether or not liens are of record against the asset being sold. These liens are particularly complex in the area of state taxation, and the consequences of not properly drafting remedies for liens that cannot be discovered before closing can dwarf the value of the transaction in extreme cases. Remedies can include escrows, hold-backs, personal guarantees, and, where remedies cannot be adequate, additional due diligence can be made as to the specific issue.

On the concept of the business lawyer as a “transactional cost engineer,” the areas of potential costs on any significant transaction can be large, and it is unlikely, except with many years of experience, that anyone (lawyer or non-lawyer) would be able to identify more than a handful of them based on intuition alone. Under this model, the need for a business lawyer with experience becomes a concern that involves assigning considerable more work to the business lawyer and away from clerical staff, and additional fees become justified.