MBE Rules · Professional Responsibility
Business Transactions with Clients
Cal. Rules of Prof. Conduct 1.8.1
The rule
A lawyer shall not enter a business transaction with a client or knowingly acquire an interest adverse to a client unless the terms are fair and reasonable to the client, are disclosed in writing, the client is advised in writing to seek independent counsel and is given a reasonable opportunity to do so, and the client provides informed written consent.
In plain English
A lawyer cannot engage in business dealings with a client or take an interest that conflicts with the client's interests unless certain conditions are met. These include ensuring the terms are fair, providing written disclosure, advising the client to seek independent advice, and obtaining the client's informed written consent.
Worked example
A lawyer proposes to invest in a startup company that a client is also investing in. The lawyer discloses the investment terms in writing, advises the client to consult another attorney, and obtains the client's signed consent. Since all conditions were met, the lawyer's transaction is permissible.
Memory hook
No business with clients without full disclosure and consent!
The trap
Exams may present scenarios where the lawyer believes they have disclosed everything, but fail to meet all written requirements or independent counsel advice, leading to confusion.
How examiners test it
Questions often test whether the lawyer followed all procedural steps for a business transaction, focusing on the adequacy of disclosures and consent.
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More Professional Responsibility rules
- Duty of Confidentiality · Cal. Bus. & Prof. Code § 6068(e); Rule 1.6
- Client Trust Account — IOLTA · Cal. Rules of Prof. Conduct 1.15
- Duty to Report Misconduct · Cal. Rules of Prof. Conduct 8.3
- Unconscionable Fees · Cal. Rule 1.5
- Fee Division Among Lawyers · Cal. Rule 1.5.1
- Compensation from Third Parties · Cal. Rule 1.8.6