May a Texas lawyer pay a nonlawyer-owned support services vendor based on a percentage of the lawyer's or firm's revenues, and may the lawyer own equity in that vendor?
Texas Ethics Opinion 706: Percentage-of-Revenue Payments to Nonlawyer-Owned Support Services Vendor and Lawyer Equity Investment
Short answer: Per the Committee, a Texas lawyer may not pay a nonlawyer-owned support-services vendor based on a percentage of the lawyer's or law firm's revenues, because that arrangement is fee sharing prohibited by Rule 5.04(a). A lawyer may own equity in a nonlawyer-owned company that does not itself engage in the practice of law, but conflict-of-interest rules and Rule 1.08(a) business-with-client requirements apply if the firm recommends or uses the vendor's services in representing clients.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Texas Disciplinary Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.
Plain-English summary
The opinion addresses a vendor that sells a platform of case-management, back-office, and legal-support technology only to lawyers and law firms, and proposes to charge fees calculated as a percentage of the customer's firm revenues. The Company would pool and anonymize the revenue data and would not access client lists or any client-specific information. A Texas lawyer also proposes to invest in the Company.
On the percentage-of-revenue fee question, the Committee concludes the arrangement is impermissible fee sharing under Rule 5.04(a). The Committee aligns with Opinions 467 (percentage-rent lease with nonlawyer landlord), 552 (percentage fee paid to insurance-defense audit vendor), and 642 (percentage-of-firm-profit bonuses to nonlawyer employees). Per the opinion, the rule turns on whether the payment is a function of the firm's fees rather than the value or cost of the services received. Anonymization does not cure that defect.
On equity investment, the Committee distinguishes Rule 5.04(b) and 5.04(d), which bar Texas lawyers from forming partnerships or practicing in entities with nonlawyer owners. Investment in a nonlawyer-owned business that does not engage in the practice of law is not itself prohibited, though Rule 8.04(a)(1) prevents the lawyer from violating the Rules through the vendor's acts. If the lawyer's firm uses or recommends the vendor's services in representing clients, the Committee notes Rules 1.06 (conflicts) and 1.08(a) (business transactions with a client; sale of law-related goods or services) may apply and may require written disclosure, advice to seek independent counsel, and the client's informed consent in writing.
In practice
Under this opinion, conduct consisting of a Texas lawyer paying a nonlawyer-owned technology vendor based on a percentage of the lawyer's or firm's revenues is prohibited by Rule 5.04(a). Per the opinion, payment based on the actual cost or fixed value of services is permissible. Conduct consisting of a Texas lawyer holding equity in a non-practicing nonlawyer-owned vendor is permitted, but the opinion identifies Rules 1.06 and 1.08(a) as additional constraints when the lawyer's firm uses or recommends the vendor's services in representing clients.
Common questions
Q: Does anonymizing the revenue data save the percentage-of-revenue arrangement?
A: No. Per the opinion, the Rule 5.04(a) violation turns on the structural relationship between the fee paid and firm revenues, not on whether confidential information is exposed.
Q: Can a Texas lawyer own stock in a legal-tech company that has nonlawyer owners?
A: Yes, if the company does not itself engage in the practice of law. The opinion notes Rule 5.04(b) and 5.04(d) prohibit partnerships and ownership structures involving the practice of law with nonlawyers; mere investment in a non-practicing entity is not prohibited.
Q: What additional rules apply if the lawyer's firm uses the vendor's services for client matters?
A: Per the opinion, Rule 1.06 (conflicts) and Rule 1.08(a) (business transactions with a client, sale of law-related goods or services to existing clients) may apply. Rule 1.08(a) requires fair and reasonable terms in writing the client can understand, advice to seek independent counsel, and the client's informed consent in writing.
Q: How does Opinion 706 connect to Opinion 707?
A: Both opinions apply Rule 5.04. Opinion 706 addresses the fee-sharing analysis when a lawyer pays a nonlawyer-owned vendor; Opinion 707 (issued months later) addresses the converse problem of a nonlawyer-owned company offering its lawyer-employees to its own customers. Both opinions emphasize that the structure of the payment, not the label, controls the Rule 5.04(a) analysis.
Background and rules framework
The opinion interprets Texas Disciplinary Rules 5.04(a) (fee sharing with nonlawyers), 5.04(b) and 5.04(d) (nonlawyer partnership and ownership of law firms), 1.06 (general conflicts), 1.08(a) (business with client and sale of law-related goods or services to clients), and 8.04(a)(1) (violation through acts of another). Rule 5.04 corresponds to ABA Model Rule 5.4; Rule 1.08 corresponds to Model Rule 1.8.
Citations and references
Rules of Professional Conduct:
- Texas Disciplinary Rule 5.04(a) (fee sharing with nonlawyers)
- Texas Disciplinary Rule 5.04(b), 5.04(d) (nonlawyer law-firm ownership)
- Texas Disciplinary Rule 1.06 (conflicts of interest)
- Texas Disciplinary Rule 1.08(a) (business transactions with client)
- Texas Disciplinary Rule 8.04(a)(1) (violation through acts of another)
Other opinions cited:
- Texas Op. 467 (Nov. 1990) - percentage-rent lease with nonlawyer landlord
- Texas Op. 552 (Aug. 2004) - third-party audit fee paid as percentage of invoiced legal fees
- Texas Op. 555 (Dec. 2004) - lawyer investment in chiropractor's practice
- Texas Op. 569 (Apr. 2006) - representing client against customer of law-related business owned by lawyer
- Texas Op. 643 (May 2014) - debt-management services company owned by lawyer
- Texas Op. 642 (May 2014) - revenue-or-profit bonuses to nonlawyer employees
- Texas Op. 658 (July 2016) - courtroom graphics company owned by lawyer
See also
- TX Ethics Op. 707: In-House Counsel for Company Customers at Cost - companion Rule 5.04(a) analysis
- TX Ethics Op. 704: Texas Lawyer Joining D.C. Firm With Nonlawyer Partner - related Rule 5.04(b) analysis
Source
- Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-706/
- Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_706.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
QUESTION PRESENTED
If a lawyer engages a nonlawyer-owned company to provide a platform of support services, may the lawyer pay fees to the company based on a percentage of the revenues of the lawyer or the lawyer's firm?
May a lawyer and nonlawyer share equity ownership of a company that sells a platform of support services to law firms?
STATEMENT OF FACTS
A company owned by nonlawyers ("the Company") provides a platform of case management, back-office, and legal support services and technology for lawyers and law firms. The Company is not a law firm and does not provide legal services. The Company markets and sells the platform only to lawyers and law firms. Lawyers and law firms who subscribe to the Company's services direct and oversee the use of the Company's platform.
The Company intends to charge periodic fees that will be based on a lawyer or law firm's revenues. The Company maintains that all revenue information provided to the Company will be pooled and anonymized so that that the Company will not receive any confidential client information. The Company will not be given a client list and will not be able to associate any revenue with any particular client.
Lawyer A is impressed by the Company's technology and services. Lawyer A proposes to make an equity investment in the Company, either directly or through Lawyer A's law firm.
DISCUSSION
A lawyer may not agree to pay a nonlawyer-owned vendor based on a percentage of the revenues of the lawyer or the lawyer's firm.
Rule 5.04(a) of the Texas Disciplinary Rules of Professional Conduct provides, in relevant part, "[a] lawyer or law firm shall not share or promise to share legal fees with a non-lawyer . . .." The rule includes three exceptions, none of which apply to charges for third-party support services for law firms. See Rule 5.04(a)(1-3). "The principal reasons for the limitations [on fee sharing in Rule 5.04] are to prevent solicitation by lay persons of clients for lawyers and to avoid encouraging or assisting nonlawyers in the practice of law." Comment 1 to Rule 5.04.
In Professional Ethics Opinion 467 (November 1990), the Committee considered an office space lease arrangement with a nonlawyer landlord in which a lawyer agreed to pay rent based on a percentage of the lawyer's gross receipts. The Committee concluded that the lease was an agreement to share legal fees with a nonlawyer in violation of Rule 5.04. The opinion acknowledged that percentage lease agreements are common in leases of commercial property. But the opinion concluded such an arrangement is impermissible for lawyers because it would "create an incentive for the landlord to refer legal business to the law firm" to increase gross revenues and, hence, the rent.
Opinion 552 (August 2004) involved an insurance defense lawyer who was required by an insurance company to submit invoices to a third-party legal fee auditor and pay for the audit based on a percentage of the invoiced fees. The opinion concluded the payment would violate Rule 5.04(a), noting that:
The insurance company has not required the lawyer to pay part or all of the actual expense of the third-party audit, it has required that the lawyer split his or her fee with the third-party auditor on a percentage basis. The payment of a percentage of the lawyer's fee to the third-party auditor constitutes a violation of Rule 5.04(a).
Similarly, Opinion 642 (May 2014) determined that a law firm may not agree to pay specified bonuses to nonlawyer employees contingent on the firm achieving a certain revenue or profit. The opinion concluded that such an arrangement would violate Rule 5.04(a):
[A] non-lawyer compensation plan that provides for a specified additional payment if the firm meets a predetermined revenue or profit goal is a type of fee-sharing arrangement that is prohibited by this Rule because the arrangement directly connects the amount of fees received by the law firm to the amount of compensation to be paid to non-lawyer employees.
Consistent with Opinions 467, 552, and 642, a lawyer who agrees to the fee arrangement proposed by the Company violates Rule 5.04(a). The Company's proposed fee is not based on the amount of services provided or the actual cost of those services, but in practical effect is a split of the fees earned by the law firm. Such an arrangement violates Rule 5.04(a)'s prohibition on sharing legal fees with a nonlawyer.
- A lawyer may own an equity interest in a company owned in part by nonlawyers so long as the company does not engage in the practice of law.
Rule 5.04(b) prohibits a Texas lawyer from forming a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law. Similarly, Rule 5.04(d) prohibits a Texas lawyer from practicing law with or in a professional corporation or association if "a nonlawyer owns any interest therein," "a nonlawyer is a corporate director or officer," or "a nonlawyer has the right to direct or control the professional judgment of a lawyer." But the Rules do not prohibit a Texas lawyer from investing in a nonlawyer-owned business that does not engage in the practice of law.
Although a Texas lawyer is generally free to invest in a nonlawyer-owned business that does not engage in the practice of law, a lawyer may not violate the Rules "through the acts of" the business. See Rule 8.04(a)(1) (a lawyer shall not "violate these rules, knowingly assist or induce another to do so, or do so through the acts of another, whether or not such violation occurred in the course of a client-lawyer relationship").
- A lawyer who owns or invests in a law-related business must guard against conflicts of interest and may need to comply with Rule 1.08.
The Committee cautions that additional ethical issues may arise if a lawyer owns or invests in a business that provides law-related goods or services to the lawyer's clients, i.e., goods or services related to the practice of law that are not prohibited as the unauthorized practice of law when provided by a nonlawyer. Examples of law-related services include title insurance, financial planning, and eDiscovery services. Under certain circumstances, a lawyer's interest in a law-related services provider may create conflicts of interest. See Rule 1.06 (Conflict of Interest: General Rule); Opinion 658 (July 2016) (discussing issues arising from lawyer's ownership of courtroom graphics company); Opinion 643 (May 2014) (discussing conflicts arising in connection with lawyer's ownership of debt management services company); Opinion 569 (April 2006) (discussing whether a lawyer may represent a client in a matter against a customer of a law-related business owned by the lawyer); Opinion 555 (December 2004) (discussing conflicts arising in connection with lawyer's investment in chiropractor's practice).
Further, a lawyer engaged in the sale of goods or services related to the practice of law must comply with Rule 1.08(a) if the business provides the law-related goods or services to the lawyer's client. See Comment 1 to Rule 1.08 ("This Rule applies to lawyers engaged in the sale of goods or services related to the practice of law, for example, the sale of title insurance or investment services to existing clients of the lawyer's legal practice."). Rule 1.08(a) provides:
(a) 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 terms of the transaction or acquisition are fair and reasonable to the client and are fully disclosed and transmitted to the client in a manner which writing that can be reasonably understood by the client;
(2) the client either is represented in the transaction or acquisition by an independent lawyer of the client's choice or the client is advised in writing to seek the advice of an independent lawyer of the client's choice and is given a reasonable opportunity to seek that advice; and
(3) the client thereafter provides informed consent in writing to the terms of the transaction or acquisition, and to the lawyer's role in it, including whether the lawyer is representing the client in the transaction.
Under the facts assumed in this opinion, it is unclear whether Lawyer A's law firm will use the Company's services in the representation of the law firm's clients (as distinguished from general law firm operations or management). If the law firm intends to retain or recommend the use of the Company's services in the representation of a client, Lawyer A's investment in the Company may create a conflict of interest and may require written disclosure and informed consent under Rules 1.06 and 1.08.
CONCLUSION
Under the Texas Disciplinary Rules of Professional Conduct, a lawyer that engages a nonlawyer-owned company to provide a platform of support services may not pay or promise to pay fees to the company based on a percentage of the revenues of the lawyer or the lawyer's firm.
A lawyer may own an equity interest in a company owned in part by nonlawyers so long as the company does not engage in the practice of law. A lawyer who owns or invests in a law-related services company should consider ethical issues, including conflicts of interest, that may arise from the investment.
Tex. Comm. On Professional Ethics, Op. 706 (2025)