Every
once
in
a
while,
you
may
meet
a
client
that
wants
to
start
a
business.
Like
most
startups,
they
don’t
have
a
lot
of
cash
for
legal
fees
so
they
offer
an
equity
stake
in
the
business.
You
may
have
heard
stories
of
people
who
became
instant
millionaires
by
accepting
company
stock
instead
of
payment
and
later
selling
the
stock
at
the
IPO
stage.
While
only
a
few
companies
will
achieve
unicorn
status,
it
may
be
a
good
way
to
set
up
an
alternative
fee
structure.
But
in
addition
to
the
possibility
of
not
getting
paid
for
your
work,
these
work-for-equity
deals
could
come
with
drawbacks
and
traps
that
could
cause
trouble
for
the
lawyer
and
the
client.
So
this
may
seem
like
a
gamble.
This
is
not
like
working
on
contingency.
In
personal
injury
cases,
experienced
lawyers
can
tell
how
much
a
case
is
worth
and
the
chances
of
winning.
They
also
know
how
to
get
paid
from
a
third
party
(like
the
insurance
company)
just
in
case
a
client
decides
to
abscond
or
straight
out
refuses
to
pay.
So
working
for
a
percentage
of
the
proceeds
is
not
necessarily
a
gamble.
The
first
thing
to
consider
is
the
person
(or
people)
you
will
be
working
with.
Do
you
know
them?
How
did
they
find
out
about
you?
If
you
don’t
how
these
people,
how
can
you
be
certain
that
they
know
what
they
are
doing
or
that
they
aren’t
trying
to
scam
you
or
someone
else?
The
next
thing
to
consider
is
the
type
of
business
they
are
running.
Are
you
familiar
with
that
industry?
Do
you
like
the
product
or
service
the
business
provides?
Do
you
know
how
people
get
paid?
The
more
you
know
about
an
industry
and
its
practices,
the
better
the
likelihood
you
can
get
paid
for
your
work.
Conversely,
there
are
situations
where
work-for-equity
deals
could
work.
Or
where
you
could
at
least
feel
comfortable
taking
the
risk.
For
example,
if
you
know
and
respect
the
people
involved
or
because
you
can
get
exposure
to
an
industry
you
want
to
work
in
or
because
the
work
can
open
doors
to
more
referrals.
One
of
the
biggest
reasons
why
many
lawyers
don’t
work
this
way
is
because
of
malpractice
insurance
coverage.
I’ve
heard
that
some
insurance
companies
will
not
pay
out
on
claims
where
both
the
lawyer
and
the
client
own
the
same
business.
Even
if
they
do
pay
out,
the
investigation
time
will
be
a
lot
longer.
This
is
because
there
is
the
possibility
of
self-dealing
and
possible
fraudulent
claims.
Second
is
taxes.
When
you
receive
equity
in
exchange
for
your
services,
technically
that
is
taxable
income.
This
means
that
valuing
your
equity
interest
will
be
difficult.
You’d
want
a
low
valuation
to
minimize
taxes,
but
if
a
company
has
a
lot
of
assets,
that
can
be
a
difficult
argument
to
make.
Not
only
that,
you
will
be
taxed
again
when
you
later
sell
your
equity,
presumably
when
it
is
worth
a
lot
more.
Lastly,
you
have
to
consider
the
ethics
of
the
arrangement.
ABA
Model
Rule
1.8
(or
your
state’s
equivalent)
states
that
a
lawyer
shall
not
enter
into
a
business
transaction
with
a
client
or
knowingly
acquire
an
ownership
interest
unless
the
terms
are
fair
and
reasonable
to
the
client,
the
client
is
advised
to
seek
independent
counsel,
and
gives
informed
consent.
Clients
tend
to
have
differing
ideas
on
what
is
considered
fair
and
reasonable,
especially
when
lots
of
money
comes
quickly.
For
example,
suppose
a
lawyer
offered
10
hours
per
month
of
legal
services
in
exchange
for
20%
of
the
voting
shares
of
the
company.
If
a
private
equity
group
offers
$10
million
for
all
of
the
company
stock,
would
the
other
shareholders
feel
comfortable
giving
$2
million
to
someone
who
only
worked
10
hours
per
week
while
the
others
worked
80
hours
per
week?
If
you
feel
uncomfortable
with
an
equity
for
services
arrangement,
an
alternative
is
to
offer
a
discounted
hourly
rate
or
a
set
number
of
consultations
without
charge.
These
are
only
a
few
things
to
consider
when
deciding
to
take
on
an
equity
for
services
arrangement.
The
ideal
situation
would
be
working
with
people
you
think
you
can
trust
who
can
help
you
gain
connections
and
referrals
in
an
industry
you
want
to
get
involved
in.
So
even
if
the
venture
fails,
at
least
the
intangible
benefits
you
gain
could
be
worth
the
time
you
spent.
Otherwise,
you
risk
not
only
working
for
nothing,
but
also
working
for
people
you
might
end
up
hating
down
the
road.
Steven
Chung
is
a
tax
attorney
in
Los
Angeles,
California.
He
helps
people
with
basic
tax
planning
and
resolve
tax
disputes.
He
is
also
sympathetic
to
people
with
large
student
loans.
He
can
be
reached
via
email
at
[email protected].
Or
you
can
connect
with
him
on
Twitter
(@stevenchung)
and
connect
with
him
on LinkedIn.