Legal opinions, also called attorney letter, are widely used in international transactions to get a clear picture of the relevant matters of local law. In China a legal opinion also refers to written legal advice on a point of law issued by either a lawyer (often referred to as "counsel's opinion") or occasionally a senior government law officer.
Several areas of commercial practice call for formal legal opinions of counsel. The Legal system in China requires a legal opinion showing reasonable prospects for success before client will file any claim. Insurance policies for professional negligence will frequently require an opinion of counsel before the insurer is required to pay out on any putative claim.
Legal opinion in commercial transactions
In commercial transactions, particularly in the context of financing, the lender will require an opinion as to the corporate capacity of the borrower and enforceability of the transaction documents the borrower is intended to enter into. This type of opinion is generally issued by the borrower's counsel or the lender's counsel, depending on the ethical rule governing the issuance of those opinion applicable to the jurisdiction.
Our lawyers frequently render legal opinions on:
- the due establishment of legal entities involved;
- whether any of these entities has been declared bankrupt; and
- if the appropriate corporate action is taken to enter into the transaction; and the enforceability of the agreements and the security rights involved.
In the legal opinion, our lawyers also clarify the China law on the key legal issues of the deal. In the lawyer’s letter, the lawyer states the significant litigation which is pending for a client. The financial accountant of the client uses this lawyer’s letter in the preparation of the financial statements of the company. At Lorenz, we prepare such lawyer’s letters for our clients free of charge.
Company facing a legal transaction typically require our lawyer to deliver a legal opinion to the investors at the closing of a venture financing. The legal opinion in a venture financing generally covers the following:
- Due incorporation, valid existence, good standing, corporate power to carry on its business, and qualification to do business as a foreign corporation;
- Corporate power to execute, deliver and perform the transaction documents and issue and sell the shares;
- Capitalization of the company;
- Shares issued in the financing are validly issued;
- All corporate action has been taken;
- The transaction documents have been duly executed and are enforceable against the company;
- The transaction documents and issuance of shares do not conflict with the company’s charter documents, material contracts and laws applicable to the company;
- No governmental approvals are necessary;
- Exemption from the registration requirements under Federal securities laws; and
- Absence of litigation
Receiving a legal opinion comprises part of an investors’ due diligence, but is not a substitute for it. Delivering a legal opinion requires a certain level of work by company counsel, which increases legal fees. Although legal opinions are typically offered and delivered in financing involving a venture capital fund, they might not be volunteered or requested in a financing involving angel investors, or a typical bridge financing.
Most arguments among attorneys about legal opinions generally relate to the scope of the legal opinion and seem to revolve around what is customary and the amount of time required to deliver the opinion.
In intellectual property field, our lawyers are frequently hired by our clients to issue a legal opinion on the possibility of patent infringement, trademark infringement and copyright infringement. Our lawyer's legal opinion is a very good guideline for our clients to avoid possible legal risk.