Can a South Carolina lawyer run a separate non-legal business under the law firm's name and deposit its income in the firm operating account?

Plain-English summary

A solo lawyer also operated a "telephone long distance" business as an independent contractor, receiving commissions and bonuses. He wanted to deposit those funds in the law firm's general operating account and to rename the telephone company to match the firm name. The committee addressed only the ethics, leaving substantive law aside.

On the deposit question, the committee found the Rules do not specifically address depositing non-legal commissions into the firm's general operating account, but Rule 1.15 would bar putting such funds in the firm's trust account, and great care should be taken to avoid commingling with client funds. The committee stressed Rule 5.4's bar on sharing fees with non-lawyers: if the telephone business employs non-lawyers, the lawyer must ensure they do not receive law firm fees and are not engaged in the practice of law, and must account carefully to keep telephone commissions separate from legal fees. It noted the Rules do not require a separate entity for the telephone company so long as Rules 5.4 and 5.5 are not violated, but that other officers, partners, or shareholders, or a non-lawyer directing the lawyer's professional judgment, would be prohibited under Rule 5.4. The committee also flagged Rule 1.8 if the lawyer transacts telephone business with firm clients.

On the firm-name question, the committee explained that under the former disciplinary rules a lawyer could not use the firm letterhead for another business, while the Model Rules instead bar misleading or deceptive communications. The lawyer may use the firm name only if he can do so without deception, but the committee found it difficult to conceive of a letterhead or card conducting the telephone business under the firm name without being confusing or misleading, and advised against it. If the lawyer used the firm name for the telephone business, the advertising rules (Rules 7.1, 7.2, and 7.3) would apply to that business as well.

Currency note

This opinion was issued in 1995, before the South Carolina Bar's adoption of the 2005 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 Treat this page as historical context, not current guidance.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: Can a lawyer deposit non-legal business income in the firm's accounts?

A: The committee found the Rules do not bar depositing it in the general operating account, but Rule 1.15 bars putting it in the trust account, and the lawyer must avoid commingling with client funds.

Q: What is the main risk in mixing a side business with the law firm?

A: The committee emphasized Rule 5.4's prohibition on sharing fees with non-lawyers, requiring careful accounting to keep the side-business commissions separate from legal fees.

Q: Can the lawyer rename the side business to match the firm?

A: The committee found it difficult to conceive of doing so without being misleading and advised against it; if done, the advertising rules (7.1, 7.2, 7.3) would apply to the side business too.

Background and rules framework

The opinion applied Rule 5.4 (professional independence and fee-sharing with non-lawyers), Rule 5.5 (unauthorized practice), Rule 1.15 (safekeeping property), Rule 1.8 (business transactions with clients), and the advertising rules 7.1, 7.2, and 7.3, each corresponding to the like-numbered Model Rule as the rules stood in 1995, and drew on ABA Formal Opinion 91-360.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 5.4 / Model Rule 5.4: professional independence; no fee-sharing with non-lawyers.
• South Carolina RPC 1.15 / Model Rule 1.15: safekeeping of client property.
• South Carolina RPC 1.8 / Model Rule 1.8: business transactions with a client.
• South Carolina RPC 7.1, 7.2, 7.3 / Model Rules 7.1, 7.2, 7.3: advertising and solicitation.

Cases:

• In re Conway, 409 S.E.2d 357 (S.C. 1991): business transactions with clients.
• In re Sipes, 377 S.E.2d 576 (S.C. 1989): discipline for mishandling another's funds outside the practice of law.

Other opinions cited:

• ABA Formal Opinion 91-360 (1991): risks of conducting a law practice and a law-related business simultaneously.
• SC Bar Adv. Ops. 91-21, 92-03: lawyers operating law-related businesses.

See also

• SC Bar Ethics Op. 96-04: Mortgage Broker as Closing Lawyer
• SC Bar Ethics Op. 96-01: Advertising a Firm's "Established" Date

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-95-30/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 95-30

A lawyer who conducts business as a professional association also operates a "telephone long distance" business, as an independent contractor. No other lawyers practice in the law firm. The lawyer receives commissions and bonuses from the telephone business and wishes to deposit the funds in the general operating account of the law firm. The lawyer also wishes to change the name of the telephone long distance company to that of his law firm.

Questions:
(1) Do the South Carolina Rules of Professional Conduct prohibit the lawyer from depositing funds from an unrelated business into the law firm's general operating account?
(2) Do the South Carolina Rules of Professional Conduct prohibit the lawyer from operating the telephone long distance company under the name of the law firm?

Summary:
The South Carolina Rules of Professional Conduct do not prohibit the deposit of funds from the telephone long distance company into the firm's general operating account (the funds could not be deposited into the firm's trust account), but the lawyer must be able to carefully account for all commissions and bonuses and attorneys fees in order to avoid running afoul of Rule 5.4 which prohibits the sharing of fees with non-lawyers.

We find it difficult to conceive of how a lawyer may ethically change the name of the telephone long distance company to the name of the law firm. This difficulty is that: 1) the lawyer may not operate the telephone business with a non-lawyer who is a partner, officer, shareholder, or director or able to direct the lawyer's professional judgment and 2) the lawyer may not use the law firm name in a way that is deceptive or misleading.

If the lawyer chooses to operate both businesses under the law firm name, all communications and advertising, even for the telephone company, will be subject to Rules 7.1, 7.2 and 7.3.

Opinion:
This committee does not comment upon matters of substantive law and offers no opinion whether the attorney may, as a matter of substantive law, deposit funds of the telephone long distance company into the law firm's general operating account. This opinion addresses only the ethical considerations and the application of the South Carolina Rules of Professional Conduct to the facts as presented. It is assumed for the purposes of this opinion that the lawyer intends to account for the funds in a way that is not misleading.

The Rules do not address specifically whether a lawyer may deposit commissions and bonuses unrelated to the practice of law into the general operating account of the law firm. Rule 1.15, regarding the safekeeping of client's property and funds would prohibit the lawyer from depositing such funds into the firm's trust account, and great care should be taken to avoid the commingling of these funds (or any other funds) with client funds.

The lawyer, however, should be particularly mindful of Rule 5.4 which prohibits a lawyer from sharing fees with a non-lawyer, except under certain specific circumstances. If the lawyer is conducting the telephone business with non-lawyers as employees, the lawyer is advised to ensure that the non-lawyer does not receive fees from the law firm and is not engaged in, or represented to be engaged in, the practice of law. See Advisory Opinion, 91-21 (law firm is not required to establish separate entity for title insurance agency). It is, as stated in that opinion, the method of operating the business that may implicate the Rules of Professional Conduct. Thus, if the attorney operates his telephone long distance company with other employees or associates, the lawyer would have to exercise great care in accounting for the commissions and bonuses from the telephone company and the fees from the law practice, in order to avoid a situation in which fees from the law firm have been shared with non-lawyers. See Advisory Opinion 92-03. (premiums payable to title insurer may be paid to insurer so long as the payments include no part of the legal fees paid to the lawyer).

As the inquirer has set forth no details as to the intended operation of the two businesses, other Rules may apply which are not discussed in this opinion.

The Rules do not require the lawyer to create a separate entity for the telephone long distance company, so long as the lawyer does not violate Rules 5.4 and 5.5. Advisory Opinion, 91-21 (law firm is not required to establish separate entity for title insurance agency). If, however, the telephone company has other officers, partners, directors, shareholders, or a non-lawyer directs the professional judgment of the lawyer, the association would be prohibited under Rule 5.4. See (ABA Formal Op. 91-360, July 11, 1991).

The lawyer should also take note of Rule 1.8 which prohibits a lawyer from entering into a business transaction with a client, unless the terms are fair and reasonable, fully disclosed, in writing and in terms reasonably understandable to the client. If the attorney transacts telephone business with clients of the law firm, the lawyer must adhere to this rule. In re Conway, 409 S.E.2d 357 (1991).

As noted in A.B.A. Formal Opinion 91-360, "[T]he absence of a prohibition does not eliminate the risks which are inherent in conducting a law practice and a law-related business simultaneously. The business dealings between the lawyer and [the business] could give rise to conflicts between the lawyer's duty to furnish independent legal counsel to another client and the business interests of the lawyer acting in the capacity of invention promoter. When the interests of the [business] and the other client diverge, as they may at any stage of the professional relationship, the lawyer who is serving in dual capacities will be confronted by conflicting interests and loyalties. To the extent that the non-legal services provided by the lawyer comprise a greater portion of the services rendered, the threat to the exercise of independent professional judgment is heightened. The non-legal services being provided by the lawyer can become a separate financial and business interest which it is the continuing duty of a lawyer to disclose in a clear form to the client. A lawyer who elects to engage in a law-related business while providing legal advice to customers of that business will, as a practical matter, have the substantial burden of establishing that any legal advice given has been free of the taint of any bias created by the dual capacities in which the lawyer has acted." If the lawyer is handling funds of others, even in a non-lawyer capacity, the lawyer should exercise care and do so honestly. In Re Sipes, 377 S.E.2d 576 (1989) (attorney who mishandled funds of another subject to discipline in matters not strictly related to practice of law).

Prior to the adoption of the Rules of Professional Conduct (based upon the model rules) the disciplinary rules then in effect specifically prohibited a lawyer from using the law firm's letterhead for another business. (See DR 2-102(E). In fact, the lawyer could not even identify title insurance affiliation or a designation as a Certified Public Accountant on the letterhead. See S.C. Bar Ethics Advisory Opinion # 75-03 and 82-15. See also Advisory Opinion 83-12) (A) (attorney must use separate letter head for business as Certified Financial Planner). The Model Rules changed the Disciplinary Rules to prohibit the lawyer from making misleading or deceptive communications regarding the lawyer's services. Thus, the lawyer may use the same letterhead and the name of the law firm, so long as the lawyer is able to do so in a non-deceptive, non-misleading manner. It is difficult to conceive of a letterhead or card the lawyer could use to conduct the telephone long distance business under the name of the law firm in a way that is not confusing or misleading. This committee would advise against doing so.

The lawyer also would be required to adhere to the Rules regulating lawyer advertising and communications, even for the telephone business, if the lawyer uses the name of the law firm to conduct telephone business. The lawyer would have to take steps to ensure that the advertisements were not misleading and keep appropriate records as required by Rules 7.1 and 7.2. The lawyer should also be mindful of Rule 7.3 which prohibits direct solicitation for professional employment and limits written or recorded solicitations from prospective clients.