Artificial intelligence is changing the way businesses operate - from automating workflows to generating marketing content. But one of the most disruptive developments is the rise of AI tools that can draft legal documents and even offer legal guidance. While these tools promise speed and cost savings, they also introduce serious risks that business leaders should understand before relying on them.

What Is AI-Generated "Legal Advice"?

Generative AI platforms like ChatGPT, Claude, and others can produce contracts, policy documents, and responses to legal questions based on user prompts. Some startups even market AI as a replacement for traditional legal services. For businesses, this can seem like an attractive alternative to costly legal consultations, especially for routine matters.

But there’s a catch: AI is not a lawyer.

Key Risks for Businesses

1. Inaccurate or Misleading Advice

AI tools can “hallucinate” by fabricating case law, misinterpreting regulations, or offering advice that’s legally incorrect. If your business acts on flawed AI-generated guidance, the consequences could include litigation, fines, or regulatory penalties.

2. No Legal Accountability

Unlike licensed attorneys, AI platforms don’t carry malpractice insurance or fiduciary duties. If something goes wrong, there’s no professional liability or ethical oversight.

3. Data Privacy Concerns

Inputting sensitive business or employee information into public AI platforms may expose your data to third-party providers. This could violate privacy laws or internal compliance policies.

4. Regulatory Uncertainty

AI-generated legal advice exists in a gray area. Regulators are still determining how these tools should be governed, and businesses using them may face scrutiny, especially in highly regulated industries.

Best Practices for Businesses Using AI in Legal Contexts

If your company is exploring AI tools for legal drafting or guidance, consider the following safeguards:

• Use AI for first drafts, not final decisions. Always have a qualified attorney review any AI-generated legal content before acting on it.
• Avoid entering confidential or sensitive data into public AI platforms.
• Be transparent with stakeholders. If AI is used in legal communications or contracts, disclose its role.
• Stay informed. Monitor developments in AI regulation and legal ethics to ensure your practices remain compliant.
• Work with legal counsel. Consider partnering with a law firm that understands AI and can help you integrate it responsibly.

Conclusion

AI can be a powerful tool for streamlining legal workflows, but it’s not a substitute for professional legal advice. Businesses that use AI wisely, with proper oversight and safeguards, can benefit from its efficiency without exposing themselves to unnecessary risk.