Earning Equity, Conflicts & Fairness

Can lawyers really be paid with equity?

HeyCounsel does not provide assistance with drafting or executing equity grant documents (but we intend to provide solutions soon). For more information, please reach out to [e-mail]

There is nothing that prohibits lawyers from working out an equity arrangement with clients. However, there are additional conflicts and fairness considerations when taking equity as a legal advisor you may want to keep in mind.

Conflicts considerations:

ABA Formal Opin. 00-418 states the following: “A conflict between the lawyer’s exercise of her independent professional judgment as a lawyer on behalf of the corporation and her desire to protect the value of her stock could arise.” For example, as a shareholder, a lawyer may want the startup to enact short-term measures which would inflate the stock price, but which may not be in the best interests of the startup in the long run.

As a result, the lawyer should clearly disclose the potential of this conflict and obtain written consent from the client prior to kicking off the engagement. They also should advise the client that as a consequence of such a conflict, they might feel constrained to withdraw as counsel for the corporation, or at least to recommend that another lawyer advise the client on any specific matter. The written disclosure should be detailed enough to allow the client to determine the nature and extent of the actual or potential conflicts and make an informed decision whether to move forward with the fee arrangement.

Fairness considerations:

The amount of equity compensation should be “fair and reasonable”. This article dives into some of the factors that should go into that analysis; however, HeyCounsel suggests a range of .25%-1% – depending upon our commitment and complexity of arrangement – in order to mitigate risk of the fairness/reasonableness of the equity compensation being called into question.

For reference, the Model Rules (Rule 1.8) state the following:

A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

1. the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;

2. the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and

3. the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction.

We drafted our Platform Engagement Agreement to be compatible with engagements based in-whole or in-part on equity compensation. Please see for more information.