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Cornell Law Review. Volume 87, Issue 1 (2001), p. 99-157.


bearing risk; Equity billing; financial risk; Silicon valley law firms; taking stock


Silicon Valley law firms were among the first to experiment with taking stock in their technology start-up clients. They were followed by law firms in other financial centers in the United States and Canada, as well as more conservative law firms in England and the rest of Europe. This Article critically analyzes the practice of lawyers taking equity in their clients as compensation for legal services. First, it explains that equity billing can provide significant private benefits to law firms and clients, and can also provide indirect public benefits. Second, it argues that equity billing can be usefully analogized to contingency fee arrangements. Third, it addresses ethical issues raised by equity billing. And fourth, it applies the economic theory of gatekeeping and explains that equity billing may impose externalities on third parties such as retail investors who rely on issuers' legal counsel to ensure compliance with securities laws. The Article concludes that a case cannot be made for prohibiting equity billing or capping the amount of equity that a lawyer can take in a client, and that the most appropriate form of regulation is heightened disclosure of equity billing arrangements, coupled with the preexisting regime of ethical rules and fiduciary principles.

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