Structuring Business Relationships
The Role of the Lawyer
This article will examine the role that "the law" plays in structuring business relationships. It will also look at the role of lawyers as faciltators and architects of contractual relationships and as mechanics that fix them when they start to break down.
The American Legal System
- The United States has one of the world's most advanced legal systems not only in its sophistication but in the embrace of the "rule of law" that adds certainty predi
- Our economic infrastructure is built on a complex hierarcy of relationships and obligations. The legal system is the framework that supports the vast system of human cooperation that is essential to our modern economy. In other words, our legal system is the glue that holds society together.
Limited Liability Entities
- All economic activities, whether it is simple barter or a complex large scale development project involve contract formation. Contracts invoke mutually binding promises. People are willing to undertake complex business dealings because they have confidence that the nation's legal system will provide all of the appropriate remedies in the event that the other party fails to live up to their contractual promises. Without these well established principles of contract law (and the legal enforcement mechanisms) economic development could not take place.
- The ability to undertake risky business ventures while enjoying limited liability protection is the key allowing individualts to undertakeg the large ventures.
- Corporations and limiity liability companies (LLCs) are, in essence, types of contractual relationships amongst the participants that qualifies the venture to be treated as an entity legally separate and apart from the individual participants. The documents evidencing this type of contractual relationship are things such as LLC operating agreements, bylaws, etc. To be legally recognized as a separate entity the law requires that an informational document be filed with the State (articles of incorporation, etc)
- Limiting individual liability has been the predominant motivation for people in forming corporations and LLCs because they allow individuals to take economic risks that would be either impractical or impossible for them to undertake in their own individual capacity.
To be a Transactional Lawyer
- To be effective, the transactional lawyer must understand the role that contract law plays in building economic relationships. The successful transactional practitioner must also understand the lawyer's role in the contract formation process.
- Successful transactional business lawyers are those lawyers that help people achieve new levels of cooperation. Trial lawyers, on the other hand, thrive on the combat that results from the break down of cooperative relationships. Obviously these two different types legal practice require different temperaments and different legal skills.
- About three fourths of all attorneys are business lawyers who are engaged in one form or another of contract formation (i.e. facilitating economic cooperation). These lawyers rarely, if ever, go to court. They provide such services as real estate closings, corporate structuring, bond counseling, syndication, contract negotiation, tax advice, trusts, insurance underwriting, commercial transactions, etc.
- The remaining one quarter of attorneys concern themselves primarily with the breakdown of human relationships. This is the world of contract disputes, torts, and crime. The lawyer's job is either to bring the opponent to his knees or to patch up the broken relationship through the settlement process. Much of legal service's work falls in this category.