Courts have long recognized that the attorney-client privilege extends to corporations, as in Upjohn v. United States, 449 U.S. 383 (1981). Because a corporation can act only through its agents, usually officers, a corporation’s attorney-client privilege generally applies to communications between the corporation’s authorized agents and counsel. As the U.S. Supreme Court explained in Upjohn, however, it is the corporation that holds the corporate attorney-client privilege, not individual officers.
In sale of business transactions, the seller corporation either sells some or all of its business by means of a merger or a sale of assets. In these transactions, particularly when they involve small and midsized corporations, counsel may represent both the selling corporation and its shareholders in negotiating the terms of sale, participating in due diligence, and completing the transaction. Unless the sale transaction is carefully negotiated and documented, however, the selling corporation could end up unwittingly transferring to the buyer its pre-merger, privileged communications with counsel relating to the merger transaction itself. This may not sound so terrible—especially in cases involving a selling corporation that ceases to exist after the transaction—until there is litigation between the buying corporation and individual owners of the selling corporation arising from the transaction.
