When to use AI & when to call your lawyer

AI in business: sometimes helpful… and sometimes risky

At My Inhouse Lawyer, we’re AI enthusiasts, but think it’s best used by experts who can spot its mistakes.

Our team are all trained on how best to use AI. We have a protected environment, never upload anything confidential, and we have been using it for a couple of years to drive efficiency for our clients.

It can be useful for quick research or giving you a starting point.

But – and it’s an important but – AI can also give confident, detailed answers that are completely wrong.

And when legal decisions depend on those answers, the consequences can be expensive.

As a team, we regard AI as the equivalent of a trainee lawyer. Someone who can do our basic research/preparatory work – but that’s all.

When you stop to think that the AI construct is wholly based on probability matching (i.e. what’s the most likely answer to this question), you realise its limits.

It’s not exacting. It’s statistical guessing.

Here’s a recent example from the front line:

Client wanted to sort out their share structure

A client owned:

• 51% of Company A (the minority shareholder owned 49%)
• 97% of Company B (the minority shareholder owned 3%)

The minority shareholder was a corporate entity and had been dissolved.

The Articles for both Company A and Company B said that if a shareholder becomes insolvent or is dissolved, their shares would be compulsorily transferred to the other shareholders.

The client wanted to tidy things up by cancelling the shares held by the dissolved minority shareholder. Before speaking to us, they asked an AI tool to explain the process.

What AI told them – and why it was wrong

After over an hour of back-and-forth, the AI confidently explained that the compulsory transfer rules wouldn’t work because “a dissolved company can’t sign anything”.

It also said the shares automatically passed to the Crown, meaning the process of cancelling the shares couldn’t go ahead.

It all sounded logical.

It was also completely wrong, and the actions the AI suggested would have created significant risk for the business.

Here’s why.

What the AI missed

The AI hadn’t looked at the companies’ actual governing documents – the Articles of Association – which specifically said:

• If a shareholder becomes insolvent, it is treated as having automatically given notice to transfer its shares (compulsory deemed transfer).
• If that shareholder can’t sign (because it won’t or simply doesn’t exist anymore), the continuing directors of the Company are authorised to sign all necessary documents on its behalf to give full effect to the transfer of shares from the dissolved shareholder to the continuing shareholders.

None of this requires the dissolved company to take any action at all.

By missing this, the AI not only reached the wrong conclusion — it reached a conclusion that would have made the Crown a shareholder in both companies.

What we advised & what the AI completely overlooked

According to the AI, the shares held by the minority shareholder were to be owned by the Crown, and hypothetically, the Crown could have brought a claim against the company or its shareholders.

The correct position, as we advised, was as follows:

• A deemed transfer notice was given by the minority shareholder on insolvency
• The Articles specified that these shares were automatically offered to the continuing shareholders
• The dissolved shareholder did not need to take any action for this to happen
• But even if action was required, the Articles granted the directors of the Company the power to sign whatever documents were needed to give effect to the compulsory transfer.

This is the sort of practical, risk-focused advice that comes naturally to an experienced solicitor but is invisible to an AI system.

AI is a useful tool for speeding up day-to-day business tasks. But knowing where its limits are is just as important as knowing what it can do.

Here’s a simple guide for SME leaders.

When AI is useful

AI works well for:

• Quick background research- but as above it’s often wrong
• High-level understanding, definitions, and simple explanations
• Policies, letters, checklists – it gives you a starting point you can refine
• Summaries and simplification
• It can break down complex topics so you’re better equipped for discussions
• Sense-checking simple questions
• General comparisons, “what does this normally mean?”, etc.

AI is fast, inexpensive and helpful — as long as the stakes are low.

When NOT to use AI (and to call your lawyer instead)

AI should not be relied upon for anything that carries legal, financial, regulatory or reputational risk. Call your lawyer when:

• You’re making decisions about ownership, shares, investors or company structure
• These decisions have lasting consequences
• You’re entering into, or relying on, a contract
• You need to interpret obligations or identify risk
• The answer depends on reading your Articles, contracts, leases or employment agreements
• The answer depends on commercial context
• You’re facing HR or employment issues
• There is regulatory exposure or potential liability
• Data protection, health & safety, industry rules
• Share cancellations, Board resolutions, Redundancies, Corporate restructures, Buying or selling a business
• A dispute is brewing, or one might arise
• You are about to take an action that cannot be undone

Accuracy matters.

If reversal is difficult, expensive or impossible, you need legal advice – not AI.

A simple rule for SME leaders

Use AI to help you think. Call your lawyer before you act.

AI is excellent at producing quick information. Your lawyer is excellent at preventing expensive mistakes.