Role Of Lawyers In Capital Market Transactions

The role of lawyers in capital market transactions is huge. And their importance has been increasing with the expansion in terms of new financial instruments and the related regulations over the last two decades. It’s important to note that lawyers are not only responsible for drafting initial documentation, which is a major part of their contribution, but also follow up on post-closing periods to ensure that regulatory compliance is maintained at all times.

We all know that commercial legal transactions are among the most important transactions as they involve large sums of money and considerable risk of loss involved which can be avoided by engaging professional legal advice.

The following are the common roles of lawyers in capital market transactions:

• Due diligence before IPO
• Negotiate interest rates
• Negotiate listing approvals in the stock market

First, you might be in need of a refresher. What is the capital market? Simply put, the capital market links parties in need of capital with those who can supply said capital. The two most common capital markets are the stock market and the bond market, the former dealing with equity, and the latter dealing with debt.

How do lawyers fit into all of this? What role do they play in the capital market?

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Lawyers provide legal due diligence

Due diligence investigations are done to see a company’s assets and liabilities. This is very important, especially right before a company offers its IPO. A lawyer's job here is to look not only for possible values, but red flags before a company becomes listed. This step is very important, as this audit informs potential investors whether or not a company fits into their portfolio. Firms like Schmidt & Clark, although not specializing in due diligence, are helpful for knowing whether a company has had any lawsuits that indicate not only financial but also moral and ethical liabilities which is important in the prospectus.

 

Negotiate interest rates

When dealing with the bond market, the interest rate is usually determined by the perceived risk of the debt and its maturity. This perceived risk, while broadly based on the credit score of the issuer, can be negotiated such as in the case of debt restructuring. In this scenario, lower interest rates can be negotiated to improve the chances of being able to pay back said debt. This is usually more desirable for both parties than if the borrower where to go into bankruptcy

 

Negotiate listing approvals in the stock exchange

Negotiating the approval of a listing involves the submission of needed paperwork and documents in order to comply with the preset listing requirements. Once a company goes IPO, the organizational structure, as well as the necessary paperwork, must be in place before this happens. This is done by lawyers for their clients so they can complete all of the paperwork and requirements needed in order to be approved and listed.

There are many more roles and responsibilities that capital market lawyers do, from drafting up documents, helping with structuring of legal documents, and negotiating on behalf of their client. But in all of this, lawyers who specialize in this help bridge deals, no matter how big or small, from the ones who need capital to those who have it.

If you want to learn more about the financial realm, browse our site which covers the entire breadth of topic while still allowing for personalization tailored to each individual user. If you liked this article, you might like this piece on how capital markets work.