Equity in Lieu of an Unpaid Bill

The equity-for-fees arrangement is a business transaction with a client and also a personal-interest conflict. Model Rule 1.8(a) applies because the lawyer is acquiring an ownership interest in the client's business in exchange for canceling a debt and providing future services. Before accepting, the lawyer must ensure the terms are fair and reasonable to the client, fully disclose the terms in writing in a manner the client can reasonably understand, advise the client in writing to seek independent legal advice, and obtain the client's informed consent in writing. Rule 1.7(a)(2) adds that the lawyer's own financial interest may materially limit the representation. The 6% stake is not a small add-on: at a $3 million post-money valuation it is worth roughly $180,000 against a $48,000 bill, and the lawyer will also be negotiating future financing and governance terms. The client's lack of counsel and the 'sign today' pressure cut against fairness. The lawyer should not draft the stock documents alone; independent counsel should review. If the client will not get independent advice or the terms cannot be shown fair, decline the equity.

The closing deadline does not suspend the rules. The lawyer cannot retroactively cure a Rule 1.8(a) violation, and proceeding without written disclosure, written advice to seek independent counsel, and written informed consent exposes the lawyer to discipline, fee forfeiture, and a voidable transaction. Options: decline the equity and negotiate a written payment plan for the $48,000; reduce the scope of future work; or accept a deferred cash fee with clear terms. Any security interest in client property raises additional Rule 1.8(a) issues and should not be taken without independent advice. If the client wants to proceed with equity, the lawyer should insist on enough time for independent counsel to review, provide a plain-language term sheet, and document the client's understanding of dilution, vesting, tax, and governance consequences. If the client refuses all safeguards, the lawyer should decline the investment and consider whether to continue the representation. A last-minute signature should be treated as a warning sign, not an excuse.

Continuing as outside general counsel while holding 6% equity creates an ongoing conflict under Rule 1.7. The lawyer's equity may align with the company on financing and valuation but conflict with the founder personally on employment terms, personal guarantees, or a later sale. The lawyer must identify those divergences, disclose them in writing, and obtain informed consent; consent to one transaction is not consent to every future conflict. If the conflict becomes nonconsentable-for example, the lawyer's shares would be affected differently from the founder's-the lawyer must withdraw from that matter. The lawyer also must not use confidential information from the company against the founder or vice versa. Practically, the firm should calendar an annual conflicts review, document the founder's consent, and avoid having the lawyer both negotiate the equity and advise the founder on whether to grant it. If the lawyer cannot manage the conflict, the safer course is a cash fee or a referral.