Legal Support to Investors
March 20, 2023
by an investor from Hamilton College in Port Orange, FL, USA
I see a lot everywhere around the legal support required for searchers and executing acquisitions which is understandable. I'm curious about the level of legal support typically given to and/or used by investors as it applies. Would be great to hear from both lawyers and investors. Any insights are appreciated.
from Villanova University in West Chester, PA, USA
Often times, your worst case scenario occurs due to lack of legal support. I get a lot of calls after a deal is done and something went wrong that someone's looking for help to fix it. It will cost 10x less to do something right the first time (i.e. have a contract that properly documents obligations) than have to fix it later (i.e. litigation or loss of income/value/revenue due to breach by a party without good recourse set forth in the contract or an obligation in the contract to be able to enforce the obligation).
The amount of legal support an attorney provides can be scaled to a budget to a certain extent. For instance, if you're really tight on budget, you could have them review the other side's documents provided to see what the red flags are. However, you're not protecting yourself well with that level of support. A competent attorney has done hundreds or thousands of transactions and reads an agreement or prepares a set of documents with many things in mind: expectations of the parties, what happens if XYZ happens (that's thought of, that's not, that's worst case scenario), what the contract says, what the contracts don't say, how to cap liability, how to backstop losses or downside, how each word and sentence may be interpreted by a judge with no knowledge of the transaction in any various event. So, the more support you have, the more you set yourself up for success.
Legal support can also really drive a deal forward. It can include a closing checklist, weekly status calls, documentation, government filings, negotiations, etc. Given their transaction experience, a good attorney should know what's market to be able to negotiate to a fair position for you and represent your interests well. In addition, they should be skilled enough to come up with creative solutions to find a path forward in a stalemate where a deal is running off the rails. They also allow an investor to have a neutral point of view, since the investor is tied to a deal and can be emotionally involved in the terms of the deal since it's a significant financial decision. It also allows the investor have a third party communicate deal terms to better preserve the working relationship of the parties in the future.
We provide our clients with the option to work with us on an hourly basis or with a flat fee rate with a specific scope to be able to align the legal support with their needs and budget. That's why I always provide a complimentary consultation, so I can better determine what those are and how we can align to support our clients. Then, we put together an engagement letter and proposal for their review based on our conversation.
If this is your career, you will likely want an attorney on board for the entirety of that career to take you from formation, to transaction, to day to day operations. Law is the fabric of business. It impacts everything we do. I'd be happy to discuss this further if you'd like!
from Lewis and Clark College in Portland, OR, USA
Investors also need to recognize that while there may be 2 or more lawyers already involved in a typical transaction (buy/sell transaction), those attorneys are not representing the investor, and are not advising to the specific issues/risks that investors face. Make sure you know who the lawyers represent, and if it isn't you, then you operating in an environment where you could be outflanked by the other parties that are represented.