Bodies of Law Governing Professional Responsibility

Business attorneys who focus on start-up work encounter numerous ethical considerations when representing new businesses and entrepreneurs. As such, one must know where to turn to find answers. This ebook will use the ABA’s Model Rules of Professional Conduct when looking at specific rules. However, as a practicing attorney, one must use the rules that are from your jurisdiction, your state. Remember, ABA Model Rules, together with comments, are a great resource, but they have no jurisdictional power. Always look to your state rules, comments, and ethics opinions when questions arise.

Business attorneys need to consult other laws that ensure attorneys adhere to ethical standards: Attorneys who practice in front of the Internal Revenue Service (IRS) must be compliant with U.S. Treasury Department’s Circular 230, and those who practice in front of the U.S. Securities and Exchange Commission (SEC) must be compliant with the Sarbanes Oxley Act of 2002. Sometimes these rules overlap and sometimes they do not. Business attorneys need to be aware of all of these rules so that they remain compliant.


Practicing before the IRS – Circular 230

Attorneys (and other tax professionals) who practice before the IRS must abide by the rules in Circular 230. Circular 230 is embodied in the regulations under 31 U.S.C. § 330 and outlines the duties and restrictions relating to practice before the IRS. The term “practicing” before the IRS is construed broadly, so as an attorney, pretty much everything you do that is federal tax-related is going to come under its purview. Circular 230 covers many areas that a start-up attorney may encounter. For instance, if you prepare or file documents (including tax returns) with the IRS, correspond or communicate with the IRS, request a comment letter on a proposed transaction, represent a client at a conference, hearing, or meeting, you are subject to the rules under Circular 230.

The Office of Professional Responsibility (OPR) is the governing body responsible for enforcing Circular 230. It is the “standard-bearer for integrity in tax practice,” and its mission is “to interpret and apply the standards of practice for tax professionals in a fair and equitable manner.” OPR has the ability to hold disciplinary proceedings and pursue sanctions, including censure, suspension or disbarred from interaction/practicing before the IRS.

A non-exclusive list of important sections when representing entrepreneurs and start-ups are:

To give an example of the wide reach of Circular 230, § 10.27 addresses both set and contingent fees. Here is the general rule:


Sarbanes Oxley Act of 2002

As an attorney for an entrepreneurial client, one can imagine some interaction with the SEC when the start-up is raising capital. Rules promulgated by the SEC pursuant to the Sarbanes Oxley Act (SOX) establish attorney conduct rules when practicing before the SEC in the representation of an issuer. (For our purposes, an issuer is a company that is raising capital and subject to the SEC’s rules.)

Attorneys are required to report evidence of a material violation “up-the-ladder” within the company to the chief legal counsel or the chief executive officer, or some equivalent. If the chief legal counsel or chief executive officer does not respond appropriately, the attorney is to report to the audit committee, some other independent committee, or the full board of directors. Ultimately, an attorney is to reveal confidential information to the SEC when the attorney believes necessary to (1) prevent the issuer from committing a material violation likely to cause substantial financial injury to the financial interests or property of the issuer or investors; (2) to prevent the issuer from committing an illegal act; or (3) to rectify the consequences of a material violation or illegal act in which the attorney’s services have been used.

The above rules are important to keep in mind if an attorney finds issues with SEC filings.



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To the extent possible under law, Samantha Prince has waived all copyright and related or neighboring rights to Entrepreneurship Law: Company Creation, except where otherwise noted.