Business & Corporate Articles

The Business Lawyer Dilemma: Providing Legal Advice vs. Providing Business Advice

As a business lawyer, it’s not uncommon to find yourself in the position where a client asks you for – or where you want to give – business advice. As a lawyer, our job is to give legal advice, but in the world of business law, the lines are often blurred between “legal advisor” and “business advisor.” In this article, I discuss the differences between legal and business advice, your duty in providing advice to your client, and potential risks (and benefits) in providing business advice to your client.

1. What is the difference between business and legal advice in the business law context? 

The answer is that there often is not a distinguishable difference between the two. For instance, imagine you have a client that is a company specializing in software development. The client asks you to review an agreement that contains an indemnification clause providing that the client will indemnify the other party for any claims relating to intellectual property rights of third parties in the software. Your client typically insists on a limitation of liability in all customer agreements, but in this case, the other party is insisting that the indemnification provision be excluded from the liability cap. Your client asks, “Should I agree to this?” 

As a lawyer, your duty is to explain the legal risks to the client, mitigate the risks where possible, but ultimately allow the client to make the business decision about whether or not to accept the risk. However, where the client turns the question over to you – by asking “Should I assume this risk?” – your answer begins to straddle the line between business advice and legal advice.

2. What is a lawyer’s duty when it comes to giving business advice? 

While business lawyers typically do not have a duty to give business advice, if you act as in-house counsel for a company, your role may specifically require you to give strategic and business advice. Even as external counsel, clients often expect you to make business decisions for them, erroneously viewing them as legal decisions. In the above example, the client likely views the question as a legal one – “Should I assume the legal risk?” – when in fact it’s a business decision: “Am I comfortable assuming this risk from a business perspective?” All business decisions are going to require some sort of risk analysis and an assumption of various risks, including legal risk, but ultimately the decision of whether or not to accept that risk is a business decision.

As a business lawyer, you are under no obligation to make business decisions for your client, but in some cases it may be appropriate to at least help guide the client toward an appropriate business decision based on your experience and expertise in the field. While the California Rules of Professional Conduct don’t provide much guidance on this matter, the ABA Model Rules provide some insight. ABA Model Rule 2.1[2] provides, “Advice couched in narrow legal terms may be of little value to a client, especially where practical considerations, such as cost or effects on other people, are predominant. Purely technical legal advice, therefore, can sometimes be inadequate.”

In the example given above, you may explain to your client that, while accepting an uncapped indemnity obligation will certainly expose the client to more risk, it is a commercially reasonable request given that your client is in the best position between the parties to manage that risk.   

3. What are the risks of giving business advice? 

Anytime you give advice, you are naturally exposing yourself to some level of risk. There is always the chance that things could go sour, the client blames you, and you find yourself defending your decision. However, that’s a risk in every business and every law firm, and one that you will need to assess based on your own comfort level.

The other (less obvious) risk is that giving business advice could potentially blur the lines between advice that is subject to the attorney-client privilege and advice that isn’t. For the most part, if you are acting as external (as opposed to in-house) counsel, your communications with your client will be privileged. However, as a general rule, the attorney-client privilege only applies where the relevant communications between a lawyer and a client are for the purpose of giving or receiving legal advice and are expressed in confidence. Application of this rule can become a bit slippery when an in-house counsel is acting in a commercial capacity (for instance, as Company Secretary) and providing business or strategic advice. While the lawyer will still be subject to professional rules of conduct that prohibit him or her from disclosing these discussions to a third party, the communications themselves may not be privileged.

4. What are the benefits of giving business advice?

In business, you often hear the concept of “adding value” or bringing something to the table beyond what’s expected. Every client expects that when they ask their lawyer for advice, they’re going to get legal advice, but if you can provide something beyond the standard legal advice, that’s where you can add value for your client. As a lawyer, you have skills, experience, and education that your clients don’t. You think about things in a different way, and you can often provide insight that the client will find very valuable. You’re well-read, well-educated, and well-informed, so draw on all your skills, experience, and exposure in your interactions with clients. If your client is a California-based solar company looking to expand into Arizona and you just read somewhere that the Arizona solar market is becoming oversaturated, mention this to your client and suggest they do a bit more digging before deciding whether to proceed with the investment. Your client will value your input and will see you as a valuable part of the team, not just another lawyer.

It is also important to know your limitations and not provide advice where you’re not competent to do so. Rule 3-110 of the California Rules of Professional Conduct provides that a lawyer must have the requisite “learning and skill” to provide the services competently or must associate with another lawyer who does. This rule applies to legal advice, but the same is true of any advice you provide to your client.  Additionally, ABA Model Rule 2.1[4] provides that, “Matters that go beyond strictly legal questions may also be in the domain of another profession…Where consultation with a professional in another field is itself something a competent lawyer would recommend, the lawyer should make such a recommendation. At the same time, a lawyer's advice at its best often consists of recommending a course of action in the face of conflicting recommendations of experts.”

5. Conclusion

As a business lawyer, you have a unique opportunity to add value to your client’s business and distinguish yourself from other lawyers by providing valuable insight beyond strictly legal advice. However, it’s important to keep in mind that business advice may not be subject to the attorney-client privilege (particularly in the context of in-house counsel) and you should only advise on matters for which you have the requisite knowledge and skills to advise competently.   

-- Danielle Fontanesi 

**This article is for information purposes only and does not contain or convey legal advice.  The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting an attorney. Any views expressed are those of the author only and not of the SDCBA or its Business & Corporate Law Section.**