Small business owners have a lot on their plate. Growing a small business is not a simple task, and protecting a business legally isn’t either. It’s extremely important that owners work with an attorney who understands the complexities that arise in representing owners in their individual capacities, and their business in its corporate capacity.
Woods v. City of Greensboro, a case this firm handled at the 4th Circuit Court of Appeals, is an excellent example that demonstrates how complex representing owners and businesses can be. In Woods, the plaintiffs alleged they were denied a business loan because of their race and sued on behalf of themselves, and on behalf of their business. The trial court ruled, however, that the plaintiffs did not have standing to assert discrimination claims on behalf of themselves. Standing is a legal doctrine that involves abstract legal principles, but basically it means a person must be directly affected by a legal dispute in order to assert a claim. Since the loan was to the business, and not to the plaintiffs in their individual capacities, the plaintiffs were not parties to the contract and therefore had no rights that could be violated if the contract were breached. The trial court also ruled the business did not have standing but for different reasons. On appeal, attorney Mark Hayes successfully argued the business had standing, but the issue of standing with regard to the individuals was not appealed.
Individuals seeking representation on behalf of themselves and their small businesses have a lot to consider. To begin with, it may not be possible for an attorney to represent both an individual and their business because of conflicts of interest. Lawyers owe a duty of loyalty to each of their clients, and when clients have related interests, it can cause problems. For example, in a family business, conflicts between and among members may be rife. When family disputes become business disputes, representing both the individuals and their business may be impossible. Likewise, having one attorney represent multiple individuals jointly can be tricky for the same reasons. The individuals have related interests, but will not always agree on everything. Since the attorney has a duty to represent each individual to the best of her ability, representing multiple individuals on the same matter may not be possible or advisable.
If the lawyer represents only the business, it should be clear from the outset that the business, and not the individuals, is the client. This can be confusing to individuals seeking representation for their business, so lawyers should always be clear about who the client is and what it means to be a client. Individuals should be informed of their “corporate Miranda warnings” and understand that legal action in the interest of the business may be taken even if that action is adverse to the interests of the individuals themselves.
Having a single attorney represent both the business and the individuals can save money, and consolidating legal matters in one firm or attorney can make legal representation a lot easier as well. Attorneys often do represent both the owners and their businesses simultaneously, but that decision should be made after careful consideration. A number of complications, especially conflicts of interest, may arise. Conflicts of interest may be apparent at the outset and prevent a lawyer from beginning representation, or they may develop later and require a lawyer to end representation. If irresolvable conflicts of interest arise later and the attorney can no longer continue representation, it can end up costing the businesses and individuals more money and time.