Can a lawyer take stock in a corporation as the fee for incorporating it, and then give legal advice to the company the lawyer owns stock in?

Plain-English summary

The Committee was asked whether it is a conflict of interest for an attorney to accept stock in a corporation as the fee for incorporating the business, and whether the lawyer can then advise the corporation in which he owns stock.

The opinion concluded that, on the facts presented, accepting stock as a fee for incorporating does not create a conflict per se. Because the lawyer's acquisition of stock is a business transaction with the client, it is governed by Rule 1.8(a), which the opinion quoted: the transaction and terms must be fair, reasonable, and fully disclosed in writing in terms the client can understand; the client must have a reasonable opportunity to seek independent counsel; and the client must consent in writing. The opinion added that special circumstances might present a conflict, so the lawyer should be guided by Rule 1.7 and related provisions.

On post-incorporation advice, the opinion concluded there is no inherent conflict in a lawyer advising a corporation in which he owns stock, but Rule 1.8(a) applies to that representation as well, along with the general conflict rule, Rule 1.7. Because the interests of the corporation and its stockholders do not, in theory, diverge, the opinion concluded that mere stock ownership does not by itself materially limit the representation. It cautioned that situations could still arise in which a conflict appears, pointing to Rule 1.13 and to its earlier Opinion No. 202, which observed that a lawyer's business relationships with clients always carry the risk of potential conflicts and should be approached with care.

Currency note

This opinion was issued in 1995, interpreting the Mississippi Rules of Professional Conduct (adopted effective June 22, 1994, and amended February 5, 1999). Mississippi did not adopt the ABA's 2002 Ethics 2000 revisions wholesale, but 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 Treat this page as historical context, not current guidance.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: Can a lawyer take stock in a company as payment for forming it?

A: The opinion concluded that accepting stock as a fee for incorporating a business is not a per se conflict of interest, but because it is a business transaction with the client it must satisfy Rule 1.8(a).

Q: What does Rule 1.8(a) require for taking stock as a fee?

A: Per the opinion, the transaction and its terms must be fair, reasonable, and fully disclosed in writing in terms the client can understand; the client must have a reasonable chance to consult independent counsel; and the client must consent in writing.

Q: Can the lawyer keep advising the corporation after taking its stock?

A: Yes. The opinion concluded there is no inherent conflict in advising a corporation in which the lawyer owns stock, because the interests of the corporation and its stockholders do not in theory diverge, subject again to Rules 1.8(a) and 1.7.

Background and rules framework

The opinion centers on Mississippi Rule of Professional Conduct 1.8(a) (business transactions with a client), which it quotes, along with Rule 1.7 (general conflicts) and a reference to Rule 1.13 (organization as client); these track the same-numbered Model Rules. It relies on its earlier Opinion No. 202 on the conflict risks of lawyer-client business relationships.

Citations and references

Rules of Professional Conduct (Mississippi; cf. Model Rules):

• MRPC 1.8(a) (business transactions with a client) (cf. Model Rule 1.8)
• MRPC 1.7 (conflicts of interest) (cf. Model Rule 1.7)
• MRPC 1.13 (organization as client) (cf. Model Rule 1.13)

Other opinions cited:

• Mississippi Ethics Opinion No. 202 (Sept. 4, 1992) (a lawyer's business relationships with clients carry the risk of potential conflicts)

See also

• MS Bar Ethics Op. 231: Taking Sides Among Partners
• MS Bar Ethics Op. 15: Law-Related and Ancillary Businesses
• AL Ethics Op. 2007-04: Corporation and Its Directors

Source

• Landing page: https://www.msbar.org/ethics-discipline/ethics-opinions/formal-opinions/230/
• Original PDF: https://www.msbar.org/media/1473/35a_et_op_230.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ETHICS OPINION NO. 230

OF THE MISSISSIPPI BAR

RENDERED November 16, 1995

CONFLICT OF INTEREST - A lawyer may receive stock in a corporation as a fee for incorporating the business and may provide legal advice to the corporation after it is formed.

The Ethics Committee of The Mississippi Bar has been requested to render an opinion about whether it is a conflict of interest for an attorney to accept stock in a corporation as a fee for incorporating the business and further whether the lawyer can provide advice to the corporation in which he owns stock after it is organized.

The Committee is of the opinion that, on the facts presented, the acceptance of stock in a corporation as a fee for incorporating the business does not create a conflict of interest per se. However, transactions between a lawyer and the lawyer's client are governed by Rule 1.8(a) of the Mississippi Rules of Professional Conduct, which provides:

A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or pecuniary interest adverse to a client unless: ( 1 ) the transaction and terms on which the lawyer acquires the interests are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client; (2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and (3) the client consents in writing thereto.

The comment to Rule 1.8 explains the rationale in this way:

As a general principle, all transactions between client and lawyer should be fair and reasonable to the client. In such transactions a review by independent counsel on behalf of the clients is often advisable.

Since the lawyer's acquisition of stock in the client amounts to the entering into a business transaction with the client, the requirements of Rule 1.8(a) would apply in this situation.

In addition, there might be special circumstances under which a conflict could be presented, and the lawyer should, as always, be guided by Rule 1.7 and other related provisions of the Mississippi Rules of Professional Conduct.

Similarly, the Committee is of the opinion that there is no inherent conflict of interest in a lawyer providing legal advice to a corporation in which he owns stock, but the provisions of Rule 1.8(a) also, apply to such representation. Further, such representation is of course, subject to the general rule regarding conflicts of interest, Rule 1.7, which states:

A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person or by the lawyer's own interest, unless the lawyer reasonably believes: (1) the representation will not be adversely affected; and (2) the client has given knowing and informed consent after consultation. The consultation shall include explanation of the implications of the representation and the advantages and risks involved.

Because the interest of the corporation and the interest of its stockholders do not, in theory at least, diverge, the Committee is of the opinion that mere stock ownership does not in and of itself create a situation in which representation of the corporation may be materially limited by the lawyer's own interest. Again, however, situations might be presented in which a conflict of interest could arise, and attention to the Rules of Professional Conduct is always advisable especially Rule 1.13 in situations similar to those in this opinion. As this Committee pointed out in Ethics Opinion No. 202 rendered on September 4, 1992, a lawyer's business relationships with clients always present the risk of potential conflicts of interest and should be approached with care.