Ethics: Representing a Partnership or Limited Liability Company

SCR 20:1.13 does not clearly delineate whether a partnership, LLC, or other type of business entity is considered an organization under the rules. Attorneys should clarify exactly who the client is when representing an organization such as a partnership or LLC.

By Dean R. Dietrich

I know who my client is when I am retained by the board of directors to represent a corporation, but I am not sure who I represent if I am retained to represent a partnership or a limited liability company.

Answer

There is a lot of debate as to whether an attorney is representing the partners or the partnership as an organization when an attorney is retained to render legal advice for a partnership. The same types of issues arise under new business entities such as a limited liability company (LLC) or a limited liability partnership (LLP). Some suggest that the attorney is representing the organization and is governed by Supreme Court Rule 20:1.13. This rule, however, does not provide clear guidance to the lawyer when addressing the question of representation of an organization that is not created or recognized by statute to be a separate and distinct entity. The nature of partnerships and LLCs suggests that the attorney actually is representing the individual partners or individual stakeholders in the LLC. However, many cases have held that the lawyer is representing the organization if the law recognizes it as a separate entity, although each situation is based on the facts involved.

SCR 20:1.13 in its simplest form only addresses the representation of a duly organized and created entity. For example, the rule requires the attorney to "go up the ladder" to the final decision makers of the organization in instances where an individual employee or officer is conducting business affairs that cause harm to the entity. The same process of "going up the ladder" does not appear applicable in the case of a partnership or LLC. These business entities envision the owners actually operating the business and making the decisions for the organization rather than utilizing the corporate structure of an officer and board of directors.

Much of the decision rests upon the relationship that is identified when the attorney is retained to represent the organization. If three partners come to the attorney seeking legal services to create a partnership, it is far more clear that the attorney is representing the partners individually rather than the partnership that is created. The scenario may be very different if the managing partner or managing owner of an LLC comes to the attorney seeking legal advice on the operations of the partnership or LLC, or asks the attorney to represent the organization in litigation.

The attorney can eliminate confusion on this topic by preparing a specific retainer letter that identifies exactly who the attorney is representing, either the individuals or the organization as a separate entity. Attorneys are well advised to draft a specific retainer letter in these instances to avoid confusion in the event a disagreement exists among the partners or owners. It also is advisable to discuss the contents of the retainer letter with each of the individual partners or owners so that a knowing decision is made by the individual as to the nature and scope of representation by the attorney.

Dean R. Dietrich, Marquette 1977, of the Wausau firm of Ruder, Ware & Michler L.L.S.C., is a member of the State Bar Professional Ethics Committee.

If the attorney does not have a clearly worded retainer letter, it is likely that the attorney will be presumed to be representing the individual partners or company owners simply because the presumption will rest with a broader scope of representation rather than a narrow scope of representation. The facts and circumstances surrounding the hiring of the attorney may affect this presumption; however, a reviewing body is more likely to look at the question of representation through the eyes of the partner or company owner rather than the attorney.

SCR 20:1.13 does not clearly delineate whether a partnership, LLC, or other type of business entity is considered an organization under the rules. Attorneys are cautioned to clarify exactly who the client is when being called upon to represent an organization such as a partnership or LLC.

Wisconsin Lawyer