A mismatch between the legal form of a transaction and its actual economic outcome is one of the most complex issues in legal practice. Professor Gabriel Steiner notes that it is precisely in such situations that the law stops treating a transaction as a set of documents and begins to analyse its real effect on the parties involved. At LawConsulted, we view such configurations not as a technical inaccuracy, but as an independent source of legal risk that typically manifests retrospectively.
The core danger lies in the fact that the legal structure of a transaction may appear flawless – the agreement is duly executed, formal requirements are met, and obligations are ostensibly fulfilled. Yet the economic outcome turns out to be different – risks are redistributed, the actual balance of benefits shifts, unaccounted enrichment arises, or hidden losses materialise. In legal enforcement, it is precisely this gap that becomes the basis for reassessing the transaction, reclassifying it, or rendering certain provisions ineffective. LawConsulted proceeds from the premise that protection must be built not around form, but around the logic of the economic result.
Professor Steiner emphasises that “the law increasingly responds not to how a transaction is labelled, but to what it actually produces.” This means that in a dispute, courts or regulators analyse who truly benefited, who bore the risk, and how the economic outcome was achieved. LawConsulted begins its work by reconstructing the entire transactional chain – from the parties’ initial intentions to the actual allocation of benefits and obligations.
Particular complexity arises where legal form is used to disguise a different economic substance – for example, loans that conceal investments, services that substitute financing, or agency structures that in fact reallocate control. Formally, such transactions may not violate the law, but in a conflict their economic substance becomes the focus of assessment. LawConsulted identifies these discrepancies and builds a position based on demonstrating a bona fide business purpose rather than relying on the formal title of the agreement.
Transactions are equally vulnerable when their economic outcome changes over time – due to external factors, market shifts, or the conduct of counterparties. A form that was initially agreed upon ceases to reflect reality, while the legal structure remains unchanged. In such cases, the risk of reassessment increases significantly. We work to show which changes were objective, which decisions were made under conditions of uncertainty, and why the economic result cannot automatically lead to an adverse legal qualification.
It is also important to consider the retrospective nature of legal analysis. Once consequences have materialised, the law tends to assess a transaction through the lens of its outcome, disregarding the original assumptions and constraints. LawConsulted brings the assessment back to the moment the transaction was concluded – to the information available to the parties at that time and the objectives they could reasonably pursue.
A mismatch between legal form and economic outcome does not in itself amount to a violation. Risk arises where there is no legal reasoning explaining that discrepancy. The task of Law Consulted is to ensure that the economic logic of a transaction is intelligible to the law and remains robust under review, dispute, or reassessment of consequences.
Earlier, we wrote about the legal risks of using preliminary agreements and term sheets, and how LawConsulted protects clients before the main contract is signed.
