Payment in shares - Tech start ups and others

The new SRA Standards and Regulations

From time to time we are asked by tech start ups and others if we might accept shares or share options in payment or part payment of fees. The company is often cash strapped in the early stages when also corporate commercial legal work is disproportionately great. Entrepreneurs are creative and quick both to see and to seek out alternative ways of doing business, perhaps wish in their advisers to see qualities, amongst others, of adventure and ingenuity, and occasionally feel reassured of greater commitment and understanding should the solicitor holds shares.

From November 2019 the new SRA Standards and Regulations come into operation replacing the current Code of Conduct. However nothing of substance changes when considering payment in shares by tech start ups and others.  Then, as now, the rules governing solicitors will be statutory - backed by sanction – and not merely voluntary/ optional.

The proposal that a firm takes shares in a client company can be a tricky one. The SRA requires us to treat clients fairly from the outset. An exchange £x of legal services for shares becoming worth £xxxxx may be seen by some shareholders or others to be unusual or unfair and need careful discussion/ explanation. Once instructed our determination to understand the business law requirements and to implement the instructions are powerful professional qualities of many decades, regardless of shareholding.  

The regulations say that we must not allow our independence to be compromised. They say to us “You can never act where there is a conflict, or a significant risk of conflict, between you and your client.”  In a proposed sale or merger for example holding shares may well cause the adviser’s independence to fall into doubt at a most critical time.

The law firm is not set up as a venture capital house but as a law firm which needs income from doing legal work to sustain and keep it stable for employees and clients. The regulations say we must run the law firm’s business in accordance with sound financial and risk management principles.

The bottom line is that law firms and solicitors can take shares in payment or part payment for legal work but the relationship takes some explaining, monitoring and managing. This in addition to supporting the client’s often complex and sophisticated business law requirements.

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