Can a lawyer take an ownership stake in a client company instead of charging fees, and what does D.C. require?

Plain-English summary

Opinion 300 (approved July 2000) responded to a lawyer asked to serve part-time as general counsel to a limited liability company in exchange for an approximately 20 percent ownership interest and a share of profits, rather than cash fees. The committee concluded that accepting equity in lieu of fees is not unethical in principle, and analyzed the arrangement under three rules.

On reasonableness, the opinion anchored to the first sentence of Rule 1.5(a), "A lawyer's fee shall be reasonable," and Comment [4], which allows a lawyer to accept property such as an ownership interest but subjects such a fee to special scrutiny because it raises questions about both the value of the services and the lawyer's knowledge of the property's value. The committee stressed that the contingent character of the fee matters (non-public start-up stock may end up worthless), and that the reasonableness inquiry includes how well the lawyer explained the financial implications to a client that may be an unsophisticated consumer of legal services. The committee declined to rule on whether this particular arrangement was reasonable, noting it had little information and that "reasonableness" is an amorphous standard it can apply only at the extremes.

On the transaction itself, the opinion held that a stock-for-fees arrangement is governed by Rule 1.8(a), which permits a business transaction or acquisition of an interest adverse to a client only if the terms are fair and reasonable and fully disclosed in writing, the client has a reasonable opportunity to consult independent counsel, and the client consents in writing. The committee read fairness as judged at the time of the engagement, not by later swings in the stock's value. Finally, on conflicts, the opinion identified Rule 1.7(b)(4): an ownership stake could adversely affect the lawyer's professional judgment (for example, when advising on a transaction that would raise the share value), and whether it rises to a disqualifying conflict is a fact-specific, objective question that the client may waive after full disclosure.

Currency note

This opinion was issued in 2000, before the District of Columbia's adoption of the 2007 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Was taking equity in a client as a fee permitted at all?

A: The opinion concluded yes. Rule 1.5(a)'s reasonableness standard and Comment [4] do not prohibit a lawyer from receiving an ownership interest as a fee; the question was whether the particular arrangement was reasonable and satisfied the other applicable rules.

Q: What did Rule 1.8(a) require for the deal?

A: The opinion held the arrangement had to be fair and reasonable to the client, fully disclosed and transmitted in writing in a manner the client could understand, the client had to get a reasonable opportunity to seek independent counsel, and the client had to consent in writing.

Q: When was fairness measured?

A: The opinion concluded that for ethics purposes, fairness is judged at the time of the engagement; if the arrangement was fair and reasonable then, a later, uncontrolled swing in the stock's value would not create an ethical violation.

Q: Could the ownership interest itself create a conflict?

A: The opinion concluded it could, under Rule 1.7(b)(4), if the lawyer's financial stake would or reasonably might adversely affect professional judgment; whether it does is an objective, fact-specific question, and the conflict is waivable with the client's informed consent.

Background and rules framework

The opinion interpreted D.C. Rule 1.5(a) (fees must be reasonable, and Comment [4] on accepting property), Rule 1.8(a) (prohibited business transactions and interests adverse to a client, with its written-disclosure, independent-counsel, and written-consent requirements), and Rule 1.7(b)(4) (a conflict where the lawyer's financial or property interests will or reasonably may adversely affect professional judgment, waivable under Rule 1.7(c)). It situated the analysis in the common-law fiduciary principle that transactions between lawyer and client are suspect and must be fair to the client.

Citations and references

Rules of Professional Conduct:

• D.C. RPC 1.5(a) / Model Rule 1.5(a) (reasonable fees; Comment [4] on payment in property)
• D.C. RPC 1.8(a) / Model Rule 1.8(a) (business transactions with a client)
• D.C. RPC 1.7(b)(4), (c) / Model Rule 1.7 (personal-interest conflict; informed consent)

Cases:

• Connelly v. Swick & Shapiro, 749 A.2d 1264 (D.C. 2000) (lawyer's fiduciary duty to client)
• Curtis v. Fabianich, 200 A.2d 382 (D.C. 1964) (transactions between lawyer and client must be fair)

Other opinions cited:

• D.C. Ethics Opinions 42 (1977), 115 (1982), 144, 179 (1987), 257 (1995)
• ABA Formal Op. 00-418 (2000); ABCNY Formal Op. 2000-3 (2000); Utah Ethics Op. 98-13 (1998)

See also

• ABA Formal Op. 00-418: Taking Equity in a Client
• ABA Formal Op. 00-416: Buying a Client's Receivables
• DC Ethics Op. 378: Cryptocurrency Legal Fees

Source

• Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-300