When the Company Lawyer Isn’t Your Lawyer: A Cautionary Tale for Shareholders

Shareholders in closely held corporations often assume that the company’s attorney serves as a neutral advisor for all owners. In reality, corporate counsel represents the entity itself, not its individual shareholders. When internal disputes arise—particularly between majority and minority owners—that distinction can have significant legal consequences.

A decision from the Supreme Court of New York, Poretsky v. Bartleby & Sage, Inc. (2023), underscores the risks shareholders face when they rely on corporate counsel for personal guidance or assume that corporate counsel will protect their individual interests.

Overview of the Dispute

The case arose from a closely held business with a majority owner and a minority shareholder holding a 10% equity interest. Over a period of years, the corporation and its majority shareholder relied on a single attorney who:

• Served as long‑standing corporate counsel

• Advised on matters affecting shareholder interests and company governance

• Had access to the company’s financial records and internal communications

• Also acted as personal counsel to the majority shareholder

When disputes emerged concerning financial management, access to records, and alleged breaches of fiduciary duty, the minority shareholder commenced litigation against both the corporation and the majority owner. The same attorney appeared as counsel for the defendants.

Both the Appellate Division and the trial court ultimately disqualified the attorney—and later his new law firm—from representing the defendants, finding that the overlapping representations created an impermissible conflict of interest and, at minimum, the appearance of impropriety.

The Court’s Analysis

New York courts have long recognized that attorneys who represent corporations occupy a position of trust with respect to all shareholders. As the court reiterated in Poretsky, an attorney who previously served as counsel to a corporation may not later represent an individual shareholder in litigation where that shareholder’s interests are adverse to other owners.

Several factors proved decisive:

• The attorney’s substantial prior involvement in corporate matters

• His access to confidential corporate information affecting both shareholders

• His simultaneous representation of the corporation and the majority shareholder

• The direct relationship between his prior corporate work and the issues in dispute

  
  

Notably, the court held that disqualification was warranted even without proof that specific confidential information had been misused. Where corporate counsel is placed in a position adverse to a former client—or to shareholders whose interests were intertwined with the prior representation—the appearance of impropriety alone may be sufficient.

The court also rejected the argument that internal ethical screening measures implemented after the conflict arose were adequate to cure the problem.

Implications for Shareholders

The decision highlights a critical but often misunderstood principle:

Corporate counsel represents the corporation—not individual shareholders—unless a separate attorney‑client relationship is clearly established.

This distinction is especially important in closely held and family‑owned businesses, where a single attorney may historically “do everything” for the company and its principals. While such arrangements may appear efficient, they can create serious risks when shareholder interests diverge.

Best Practices and Risk Mitigation

Shareholders can reduce risk by adopting several prudent measures:

• Clarify representation early. Confirm in writing whether corporate counsel represents the entity only or any shareholder individually.

• Engage independent counsel promptly. The moment interests begin to diverge—particularly regarding compensation, distributions, governance, or access to records—independent advice is essential.

• Exercise caution in communications. Assume that discussions with corporate counsel may not be confidential as against other shareholders.

• Document concerns and requests. Written records regarding access to information and decision‑making authority can be critical if disputes escalate.