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Business and Securities LawThe newsletter of the ISBA’s Section on Business and Securities Law

January 2011, vol. 56, no. 2

Checklist for third-party attorney opinions

Various business transactions, whether concerning the sale of a business or the borrowing of funds from a financial institution, typically require the issuance of an attorney opinion letter to a party of a transaction who is not the opinion provider’s client. These types of opinions are referred to a third-party attorney opinions. They are typically delivered in connection with the closing of a business transaction. The opinions are relied upon by a third party to give certain assurances to the third party with respect to your client as part of a particular transaction. Lawyers issuing these opinions encounter the risk of being sued over these opinions when fraud or other improper action by a transaction party arises after the transaction closes.

This article seeks to give a lawyer a list of actions items and considerations when conducting the due diligence needed to issue a third-party opinion.

1. Start very basic by identifying the client and the other entities for which the opinion will apply, i.e., subsidiaries, related companies, guarantors or other borrowers. Identify when and for what purpose the opinion is needed. Determine which form of opinion will be used, i.e. your form or lender’s form. If you use your form opinion, be mindful of any changes or deviations from your opinion and the reason for the change or deviation.

2. Identify who will be drafting the opinion and whether someone in your law firm will be reviewing the opinion. Consider any applicable law firm policy and procedure for issuing third-party legal opinions.

3. You have to be familiar with the facts and circumstances of the specific transaction for which the opinion is being given. This will require that you review: (a) existing operative and background documents for your client and all other entities for which the opinion is given, and (b) the transaction documents.

a. Operative and Background Documents. The following documents should be obtained for your client and all other entities for which the opinion is given. Be sure to obtain all amendments to the documents identified below. State whether any of the documents have not been fully executed. Also, consider describing any other relevant circumstances or facts with regard to the client or other entities that may be relevant in issuing the opinion.

i. Articles of Incorporation/Articles of Organization/Charter documents/Certificate of Limited Partnership;

ii. Good Standing Certificate(s)/Qualifications to do business in other states;

iii. By-Laws/Buy-Sell Agreements/Operating Agreements/Proxy or Voting Agreements;

iv. Resolutions/Consents of Board of Directors/Managers/Members authorizing and approving transaction/Certificates of Incumbency with specimen signatures;

v. Stock Certificates/Member Certificates/ownership ledger;

vi. Search results for UCC/Tax/Federal and State Litigation, Judgment and Bankruptcy/Federal and State Lien (be sure to check all applicable jurisdictions);

vii. Securities and securities transaction registration/exemption requirements;

viii.Research any existing or pending litigation;

ix. Identify any other relevant documents, i.e. leases, service agreements, restrictive covenants, easements, and intellectual property agreements; and

x. Keep notes of any interviews or attorney conferences needed with respect to a particular issue raised or concerned matter.

b. Transaction Documents. List the exact name and date of each document for the transaction. Consider using the transaction/closing checklist to determine which documents need to be reviewed. You need to actually possess and review each transaction document to issue the opinion.

4. If the situation is appropriate, inquire as to whether you should use a form set of opinions provided by another party to the transaction and analyze opinions. Otherwise, analyze which opinions are necessary. Be aware of whether the opinion requires any written advice concerning a significant issue of federal tax law. If so, you will need to determine whether the opinion complies with the requirements of the Internal Review Service’s Circular 230 and any particular policy of your law firm.

5. Communicate with your client the need for you to give a legal opinion. Review with client legal opinions you will and will not give. Determine whether local counsel is necessary to give certain opinions.

6. Determine what assumptions, qualifications and limitations apply to your opinions.

7. Each opinion will require you to conduct and document the due diligence performed in order to give such opinion. Below are some of the more common opinions given and the due diligence considerations for each. Because there are various types of opinions that may be given with respect to a particular transactions, this checklist does not provide an comprehensive list of opinions or the necessary due diligence.

a. Company is a [corporation/ limited liability company/ partnership/ etc.] duly organized, validly existing and in good standing under the laws of the State of _____________. You should consider reviewing the company’s formation documents, annual reports, good standing certificates, corporate records (including consents, approvals and resolution), foreign qualification certificates and filings (if applicable), and any amendments to the foregoing.

b. Company has all of the requisite [corporate/company/partnership] authority to execute and deliver the __________ Documents to which it is a party and to perform its obligations thereunder. The ________ Documents have been properly executed and delivered by or on behalf of Company, and constitute the legal, valid and binding obligations of Company, enforceable against Company in accordance with their respective terms. With regard to an opinion on authorization, execution and delivery of certain documents by your client, you should consider the following: (a) determine whether the board of directors, shareholders, members, managers or other took action to approve the documents, (b) review the documents giving the authority to approve the documents to confirm authority and that proper procedures were followed, (c) determine if other approvals are necessary, (d) list any regulatory requirements or restrictions affecting transaction, (e) list requirements of any market in which the client’s securities are traded, (f) list the requirements of identified in the transaction documents, and (g) obtain incumbency certificate or other documentation to verify who is permitted to execute the transaction documents.

c. The execution and delivery by Company of each of the _______ Documents to which it is a party will not result in a violation of any applicable law, statute, ordinance or regulation of the United States or the State of _____________, including, without limitation, _____________ [INSERT NAME(S) OF STATE BUSINESS STATUTES], as applicable. To give this opinion, you should be mindful of to which documents this opinion applies, i.e. just the transaction documents or other documents of the client. Consider discussing with your client’s in-house counsel, if any, which laws and regulations apply to the company’s business that are covered by the opinion. Identify the specific laws and regulations that are covered by the opinion. If necessary, consult with local counsel regarding a particular state’s laws and regulations. You ultimately will need to verify that the transaction documents and the obligations of your client thereunder do not violate (or are prohibited by) the identified applicable laws and regulations.

8. Negotiate legal opinions identifying which opinions will and will not be given, whether certain opinions will be given in modified form and what assumptions, qualifications and limitations are necessary.

9. Draft officer’s/manager’s/member’s/partner’s certificate(s) identifying certain statements of fact to be relied upon by you when giving legal opinion. Be sure to get original signed certificate back before finalizing opinion.

10. Draft memorandum to file summarizing the documents and information used to support the legal opinions given in connection with specific transaction and why it is appropriate to give such opinion. Also, attach the support documents and information to memorandum.

11. Consider having another lawyer in your firm who is familiar with the specific transaction review the draft opinion, office’s/manager’s/member’s/partner’s certificate(s) and memorandum to file.

12. Set aside some time to take a final review of the opinion to sign opinion. ■


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